In EU the lines separating the real responsibilities between national and local politicians, and Brussels technocrats, are way too blurry, at least for the ordinary European citizens

Sir, Simon Kuper writes: “In recent years, we have improvised our way into an EU that works for most Europeans of our generation. We now have what Charles de Gaulle called a “Europe of nations”, in which the big decisions are made not by Brussels bureaucrats, or the European Parliament, but by national leaders acting in concert.” “Why today’s Europe of nations works” May 18.

I disagree. Because of the most probably very disastrous consequences for the euro and for the EU, the single most important decision that has been taken in the EU is, for the purpose of the risk weighted bank capital requirements, assigning to all eurozone sovereigns a 0% risk weight, and this even though they all have their debt denominated in a currency that de facto is not their own domestic printable one.

Sir, what German politician would like to be asked: why did you consider that German banks needed to hold eight percent when lending to German entrepreneurs but could lend to Greek bureaucrats against no capital at all. I venture the answer to that to be, no one!

In EU, technocrats and politicians will blame each other, whenever it’s convenient for any of them, but that is usual in most places. The real difference here is that in EU, the lines separating the responsibilities between national and local politicians, and the technocrats, are as blurry as can be. To know that it suffices to follow the European Commission twitter account, and therefore receive the most amazing barrage of publicity on it doing things that nobody could ever think was their responsibility.

Sir, those supporting Brexit could wrongly suppose too much decision power rests in EU, but those supporting Remain could be just as wrong supposing too much decision power remains in Britain. Who knows? Not me, but perhaps not you either.

@PerKurowski

Aren’t all nations, one way or another, tarred with a similar brush of nationalism?

Sir, Harriet Agnew and David Keohane report that, on the centenary of the end of the First World War, Emmanuel Macron railed against nationalism as a “betrayal of patriotism”, in an implicit rebuke to his US counterpart. “Macron attacks nationalism in Armistice Day rebuke to Trump” November 12.

Macron said: “By saying ‘Our interests first. Who cares about the others?’ we erase what a nation holds dearest, what gives it life, what makes it great, and what is essential: its moral values.” Is that not beautiful? Of course it is!

My problem though is that precisely these days I have been writing that the ending of the First World War, and the Versailles treaty, should provide an opportunity to reflect on the armistice conditions that are imposed on sovereigns, when they have to capitulate because of excessive loads of public debts. This especially because it is usually not only the defeated sovereign’s fault. 

If we look behind most odious debts, we will find surely find odious credits. In the case of eurozone sovereigns, like Greece, odiously dumb regulations too. Assigning a zero risk, as the European Commission did to a nation that is much indebted in a currency like the euro, which is not really its domestic (printable) currency, made absolutely no sense. That meant for instance that German and French banks could lend to Greece against no capital at all, and so, naturally, these banks could not resist the temptation of offering Greece too much credit, and Greece could not resist the temptation of taking on too much debt.

But what happened? The recent armistice conditions imposed by EU authorities required Greece to take on debt, much of it in order to repay German and French banks, leaving it with about a €345 billion debt, more than €30.000 per each Greek, in a currency that as I mentioned is de facto not their own. 

Sir, so I ask is that not just another Carthaginian peace? Viewed this way, no matter how right what Macron preaches is, does he really have the right to throw the first stone on “moral values”? Aren’t all nations, one way or another, tarred with a similar brush of nationalism?

Sir, this is no minor issue. Since Italy would most probably not walk the plank like Greece, the future of the Euro, and of the European Union is at stake… and that is something that those who might rightly defend the Remain against the Brexit, should at least out of pure precaution consider.

@PerKurowski

EU, when imposing armistice conditions on your capitulating eurozone sovereign debtors, remember the Versailles Treaty.

Sir, Simon Kuper referring to historical events like the Versailles Treaty writes, “In international relations, treat even your opponents like long-term business partners. You will meet again, and if you hurt them for short-term gain, they won’t forget.” “Lessons from 1918 for today’s world leaders”, November 3.

And Kuper follows it up with, “Peace in the region cannot remain the EU’s selling point. Precisely because Europeans have come to take peace for granted, they now (rightly) ask: ‘What have you done for me lately?’ ”

Sir, if I were a Greek citizen, and perhaps this would soon apply to an Italian too, I would ask and tell the European Union authorities, the European Commission, the following: 

“Why on earth did you assign our sovereign, who you must know that in terms of fiscal sustainability and efficient governing is not the brightest star by far, an absolute zero percent credit risk? That allowed banks all over Europe to lend to our sovereign against no capital at all, something that caused our sovereign to get hold of more and more easy money… until it could no more.

But besides this, what I really want to know is: Even though you have provided some cash flow easing, which helps of course, as it was partly or even mostly your fault, why did you force on us Greeks all that debt and did not ask European banks to share more in the losses? Thanks much to your mistake and your armistice terms, we are now saddled with about €345.000 million of debt, more than €30.000 million for each Greek, and it is all denominated in a currency which de facto is not entirely our domestic currency.

Do you think that newborn Greeks, when they grow up and find out, are going to keep a cool head about all this and be able to sing the EU’s anthem “Ode to Joy” with enthusiasm?”

Sir, in short European “world leaders gathering in Paris next week to commemorate 1918” should reflect on what they might be doing today when imposing unrealistic armistice conditions on those who have to capitulate on not being able to service their sovereign debt.

PS. Sir, as a Venezuelan I can assure you that those looking to bailout those of theirs financial profiteers who provided finance to our corrupt human right’s violating regime, will not find us Venezuelans accepting that without a fight.

@PerKurowski

With so much debt in a currency that is really not their domestic one, has Greece really made it to the other side?

Tony Barber opines “Greece is finding its way back to domestic stability and a secure place in the European order” “Greece shows how a maverick nation can recover from disorder” November 1.

Really? Greece debt is around €345bn euros, about €32.000 per citizen, in a currency that for real practical (printing) purposes is not their own?

That is a result of ignoring the fundamental Gordian Knot in European Union, by means of EC’s Sovereign Debt Privileges, that of assigning an absolute zero credit risk to sovereigns in the eurozone who are indebted in a currency that is really not their absolute own.

Britain and Sweden resisted adopting the euro. Had Britain done so, then Brexit would have been a reality almost unanimously supported, a long time ago.

I do sincerely suggest that any Remain proponents, if only to safeguard their own reputation, require a response from EU of how it will go about to unknot that knot, before it brings EU down.

https://teawithft.blogspot.com/2018/09/in-case-of-greece-eu-violated.html

https://teawithft.blogspot.com/2018/10/eu-authorities-assigning-italy-like.html

@PerKurowski

Italy’s mostly domestic debt is denominated and must be served, in a mostly foreign currency, the euro.

Sir, Isabelle Mateos y Lago informs that “the bulk of sovereign debt is owed to Italian residents rather than eurozone governments.” “Greek debt crisis echoes resound in Italy’s face-off with Brussels” October 25.

EU’s authorities assigned to all sovereigns using the euro, by means of something called “Sovereign Debt Privileges”, for purposes of the risk weighted capital requirements for banks, a 0% risk weight

The only way one could foreseeable defend such outright statist idiocy, is with the argument that nations are always able to nominally pay their debt by printing themselves out of too much debt. Unfortunately these euro nations do not have their own euro-printing machine.

The challenges with the adoption of the euro twenty years ago were immense and surely known by many. Myself, far away from Europe, in Venezuela, in November 1998 published an Op-Ed titled “Burning the bridges in Europe”. In it I wrote: 

“The possibility that the European countries will subordinate their political desires to the whims of a common Central Bank that may be theirs but really isn’t, is not a certainty. Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

So here we are with mindboggling little having been done to solve the euro challenges. Pushing more debt on needing sovereigns basically just kicked the can containing the euro’s problems down the road.

Mateos y Lago concludes: “Italy is too big and strong to be pushed around. So Italians will decide their own fate. The others should redouble efforts to survive this potential wrecking ball. This means adopting European Stability Mechanism instruments that would allow near instant access to OMT to well-run countries suffering from contagion, and provide some form of collective insurance against bank runs for institutions that meet agreed criteria” Indeed but that is again just pushing the euro challenge forward upon the next in line.

That, to me, sounds just like “Let’s kick the euro-problem can down the road again!”

Sir, as I’ve told you many times before, it is also mindboggling how in all the overheated Brexit/Remain discussions, so little attention has been given to the EUs very delicate conditions

@PerKurowski

The one most worthy and in need of a “teachable moment” is the European Union itself.

Gideon Rachman“fears that Britain is heading towards what counsellors call a “teachable moment”, otherwise known as a traumatic experience that forces people (or nations) into a fundamental reassessment.” “Britain is poised to learn a hard Brexit lesson” September 25

To that purpose Rachman mentions, “Greece experienced not triumph but humiliation – as its government was forced to accept the bailout that it had just rejected.”

Indeed, but the one who would best have been helped by a “teachable moment”, that would be the EU itself; which could have happened if only Greek citizens had sued EC, for allowing banks to lend to the Greek sovereign against zero capital of their own, which of course doomed the Greeks to their tragedy.

Does Britain or any EU nation really want to end up like Greece? I believe not. For that not to happen all Europeans need to call out their authorities on much more, instead of silently swallowing EU’s marketing efforts; thankful for being able to freely visit each other; something that when you get down to it does not really require a European Union for it, as neither does free trading, as neither does being able to work or reside in any EU nation for that matter.

How long will techno/bureaucrats, in EU or anywhere be able to extortionate more power for themselves, or increase the value of their redistribution franchises, by offering the citizens goodies these could obtain by other simpler means?

For instance the day an unconditional Universal Basic Income is adopted, that day we will be able to rebalance much more power in favor of citizens and lessen that of those all who engage in the crony statism that is killing us slowly. 

Does a teachable Brexit moment preclude something very good coming out from it? I don’t think so; I have too much respect for the Brits. Perhaps they can even help to save EU.

@PerKurowski

Does Britain still have sufficient resolve capacity? If yes, perhaps a no-deal Brexit could be a good time to exercise that muscle.

Sir, Wolfgang Münchau though he states“If the UK were to crash out of the EU I doubt the bloc’s leaders would sit down to negotiate” he also a bit contradictory opines“the EU has a much lower political pain threshold for a hard Brexit.” “A no-deal Brexit creeps closer” September 24.

Even though the debates on Brexit seem to have been politically skewed to only mention Britain suffering from Brexit, in any which shape it comes, I agree with Münchau on that the EU could also suffer a lot of political pain.

I am not a Brit. Way back I spent a year in London practicing at a now sadly extinct merchant bank, and studying at London Business School and London School of Economics. I have also had English corporations as clients, and of course I have many good friends there. So let me say the following from the heart.

If Britain has the needed resolve capacity to take on a no-deal Brexit then, having to use it could help to strengthen its resolve capacity for the many other probably even larger challenges awaiting them and all of us around the corner. If Britain does not have it, then accommodating to EU wishes, will de facto also weaken its general inventory of resolve capacity.

All that is made worse by the fact that in many ways many of EU’s “successes” seem more the result of heavy marketing by the European Commission, than grounded on real results. For me that EU has not been able in twenty years to really tackle the challenges posed by the euro; and that after its own authorities assigned a risk weight of 0% to Greece, it left that nation to pay on its own for the over-indebtedness that had to result, makes it clear that something very serious is amiss in the EU. In fact, when I see some of its promo material such as regulating the entrance fees to a monastery in Romania I have even caught myself thinking of a Banana Union.

At the time of the Winter Olympics, I was blown away when I saw the enthusiasm of Italy’s Soffia Goggia singing her national anthem after getting a gold medal. Surely few would sing the European anthem that way. And though I know, after looking it up on the web, that Maryland USA, were I live, has an anthem I have never ever heard it.

Sir, creating a Union is something that also needs a lot of heart put into it. Do those hearts exist sufficiently in Britain or in Europe? If the answer is no, then perhaps it would not be contrary for Britain to exercise some of its resolve capacity now. Like with any other muscle, if you do not use it you lose it. 

@PerKurowski

If EU does not face and solve the challenges posed by the euro, it will break down.

Sir, you write, “Joining the euro meant losing the ability to depreciate its currency — long Italy’s safety valve when its competitiveness failed to keep pace with its neighbours.” “Italy needs real economic plans, not empty slogans” September 6.

On the eve of the euro in an Op-Ed I wrote, “Exchange rates, while not perfect, are escape valves. By eliminating this valve, European countries must make their economic adjustments in real terms. This makes these adjustments much more explosive.”

And that EU authorities must have known was the main challenge the euro posed. And of course it is not only about Italy. Without the euro the Deutsche Mark would have revalued and Germany would not have its current trade surplus.

But what have the European authorities done to face up to that challenge? Basically nothing, just empty slogans. Instead EC have even dared to keep busy with helping to solve cases like persuading church authorities to establish non-discriminatory entry fees for the monasteries... that's acting like a Banana Union.

But, as if that was not enough they also went and risk weighted the capital requirements for banks for all EU sovereigns at 0%, which means that market interest signals on sovereign debt have been artificially lowered, and so that EU banks can easier finance any disequilibria... and that even though all Eurozone sovereigns denominated their debt in a currency that is not really their domestic (printable) one.

Sir, irresponsible EU authorities are dooming that beautiful dream of the European Union, to turn into a real nightmare… and I am truly surprised by how little that fact has played out in all the discussions on Brexit.

PS. Though Greece should perhaps have been risk-weighted 200%, EU authorities assigned it 0%. As a consequence, Greece took on too much debt; and EU ignored its responsibility for it. Now each newborn Greek carries a huge mortgage. Is that how a Union should behave? I don’t think so.

PS. I first read about that monastery fees issue in a brochure that the then European Commissioner for Internal Market and Services, Michel Barnier, handed out in June 2011 during a conference in Washington at the Brookings Institute.

PS. On a different topic: The following, from a transcript, is a question I made during that conference, and Mr. Barnier's answer.

"MR. KEROVSKY: Yes, my name is Pere Kerovsky. Europe is there -- is what it is because of a lot of willingness to take risks, and in fact partisan songs often include “God make us daring,” and Pope John Paul II asked us to fish in deep waters, not settle for the (inaudible). But the last 20 years we have had bank regulations that are based on perceived risk and that have introduced a risk adverseness into the system, obviously a crisis that detonated in triple A-rated land and sovereign is not a crisis because of excessive risk taking but because of excessive adverseness of risk. You still are going the same route. Does this mean, really, that Europe has called it quits? Has capitulated and doesn’t want to really go forward because they’re giving up their willingness to take the risks needed? 

MR. BARNIER: I was amused by your first reference to fishing in deep water. I was a fisher’s minister (laughter), so I’m very interested in that. There’s less and less fish in deep waters, you know that. Watch out. 

Don’t count on me to say it’s business as usual. It’s not possible. Perhaps it is what certain bankers wish or -- but it’s no longer possible for citizens. We are not there to prevent risk-taking. We’re there to prevent excessive risk-taking. The payers are not the ones who are taking risk; it’s the taxpayers. When I see how compensations and bonuses have been calculated with riskier and riskier systems since the riskier the more paid you were, I think it’s one of the reasons of the crisis, and you know it. Who paid in the end? Taxpayers here and elsewhere. But we’re not there to prevent risk-taking. Everybody has to assume the risk responsibilities and pay the price, and we have to know who is doing what. 

I don’t see how a general system, which is not there yet, in food transparency would prevent risk-taking, but I think we should take risk, and I take risk in my planning, but those who take risks must be ready to accept that it is well known and then assume the responsibility.” 

Sir, I hope you understand by now how far Michel Barnier was from understanding the risk of excessive regulatory risk aversion, that which caused the 2007-08 crisis explosion, because of especially excessive exposures by banks, against especially little capital, to what was perceived or decreed as especially safe.

@PerKurowski

Professor David Camroux, referring to a Robin Hood tax, seems to be just another applicant to the position of a Sheriff of Nottingham.

Sir, here is David Camroux, an Associate Professor of Science Po, quoting Jean Baptiste Colbert in that “the art of taxation” is taxing so that it is least noticed; writing that the FTT proposed by the European Commission could raise about €30bn to €35bn annually; and indicating it as an amount “rather small in comparison to the revenue needs of the 11 European Governments concerned”, and still he has the gall to refer to it as a Robin Hood tax, “FTT a feather in the cap for the average taxpayer”. May 30.

Sincerely as far as I am concerned Mr. Camroux is clearly only showing credentials to apply for the position of a Sheriff of Nottingham.

Perhaps one day we will find FTT as uncontroversial as VAT Camroux writes. Indeed, but was that to happen, that would just mean another regressive feather plucked from the goose average-taxpayer and put in an average European Commission bureaucrat cap.

If Professor Camroux really wants to help the average taxpayer, then what he should do is to question the revenue needs of their respective governments.

PS. There was a time that the FTT could have been a Robin Hood tax. That was when it was seen as an instrument to obtain resources from rich countries so as to help poor countries. But that was, at least, a financial crisis ago.