Round of Applause

Please consider Congratulations, It's a Fudge.

EU finance ministers gave themselves a round of applause as they wrapped up talks on Thursday night with agreement on a package of measures worth half a trillion euros to cushion the blow of the coronavirus pandemic.

French Finance Minister Bruno Le Maire said that after 16 hours of “brutal” inconclusive negotiations earlier in the week, the ministers realised they were “standing at the edge of the abyss and what is at stake is quite simply the construction of Europe”.

However, the ministers kicked into the long grass the question of how to pay for a temporary recovery fund for Europe because it goes to the heart of a disagreement over jointly issued debt.

Don’t expect this thing to fly any time soon,” ING said in a research note forecasting more arguments over debt mutualisation or other funding sources.

Only Fools Bet Against and EU Deal

Eurointelligence explains. Italy Folds for the Sake of a Deal.

The big news yesterday is no doubt the eurogroup agreement. As we wrote yesterday morning, it would have been unwise to bet against a deal, which did not stop some people from doing so. We have been through this before with the eurozone crisis. Then, as now, the problem was never an inability to reach agreement but the nature of the agreement itself.

Wopke Hoekstra and Roberto Gualtieri, the two principal opponents at the eurogroup meetings on Tuesday and yesterday, came back with diametrically opposed interpretations of what was agreed. Gualtieri said that conditionality for an ESM programme was off the table. Hoekstra said it was still there. They are both right.

It is the job of diplomacy to find the right words to make this possible. EU diplomats are exceedingly good at that. Only fools ever bet against an EU deal. In this specific case, the text says access to the ESM is unconditional, but also says the standardised terms will be set by the ESM governing board.

What was agreed yesterday is well below macroeconomic relevance. The text claims that the discretionary measures by member states so far account for 3% of GDP. We flatly dispute that number. We suspect that it throws together measures at various stages in the fiscal pipeline. But experience shows that only a fraction of what is earmarked will ultimately get through. The amount of discretionary fiscal spending unleashed in the eurozone so far is small compared to the US and the UK.

So what’s the bottom line? We think the Italians have folded. The battle for the eurobond is lost. The re-nationalisation of policy is in full force. And we are set for another financial crisis soon, when the impact of Covid-19 on the debt sustainability of member states becomes only too clear.

The Limited Unlimited Deal

And that my friends is how you have a limited, unlimited, conditional and unconditional deal with both sides claiming victory.

Once again, we have concrete proof of the wise decision of the UK to vote Leave.


Monumental Decision

It's time reflect on the UK's monumental decision to leave the EU.

Let's start with a review of my December 13, 2019 post Labour Slaughtered, Corbyn Refuses to Admit He is the Reason

Pater Tenebrarum Commented

Assuming Johnson does get Brexit done (and it seems he will), this will be the first time ever that a popular vote that went against the EU is actually respected (as opposed to "repeated until the result is to the EU's liking").

It is actually quite a monumental event for that reason alone. And I think its importance is still underestimated. The EU now loses one of its biggest net payers.

The remaining net payers henceforth will have to shoulder a far bigger financial burden to continue subsidizing the have-nots (and French farmers). I cannot imagine that this will be a friction-free affair.

Particularly as the UK is bound to unleash the kind of tax and regulatory competition that is anathema to the socialist high tax "harmonizers" and centralizers running the bureaucratic Moloch in Brussels.

Indeed. We can expect an increasing amount of internal EU friction.

And it still take 27 nations to agree to damn near anything to reach a deal.

Don’t Expect this Deal to Fly Anytime Soon

In addition to being both limited and unlimited, and conditional and unconditional, the stimulus deal also calls for, without explaining, “innovative financial instruments”.

What does that mean precisely?

No one knows. More accurately, every country gets to keep its own view of what that means no matter how contradictory those ideas may be.

Why Remainers wanted to say in this bureaucratic nightmare with massive UK bailouts of Eurozone nations on deck is still a mystery.

Meanwhile, hooray. We have a deal. Let's celebrate.

Mike "Mish" Shedlock

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