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
Italy undoubtedly is not pro-EU to any degree
Italy has threatened to leave the Eurozone and that has come up again, recently
I’m traveling Italy twice a year for business and pleasure; never met one anti EU Italian. May be I’m traveling wrong places!
The $40 Trillion Problem It’s The Debt, Not Just The Virus https://seekingalpha.com/article/4336136-40-trillion-problem
Thanks for posting this article, very insightfull!
Can’t wait for the “quarantine” to end there. There is a pent up demand for Yellow Vest protests… then the “quarantine switch will be suddenly turned back on. On-off-on-off-on-off-on-system failure.
Italy is very pro-EU. Partly it’s because they dont rate their own Governments/systems so cling to others and partly an inferiority complex.
I spend time in Italy, am not anti-Italian.
They will go a long no matter what, no matter how much they might complain.
The EU platform is a failure from the start and it will eventually fail most people in Europe .
At least since Euro – it might otherwise be just some side office where common standards were argued out (though it was never designed to be that nor would settle at that) .
The question is, and if it was designed to fail, was that failure to be of countries? If so, will people turn to EU for a reply or to their own countries that are no longer serviceable?
“The question is, and if it was designed to fail, was that failure to be of countries?”
Don’t think it was designed to fail but EU architects new that it was flawed. Never waiste a good crisis as the political saying goes. My guess is their plan was that any crisis could be used to further the endgoal of creating a United States of Europe (USE). EU parlament is operating since 1972 ( purely symbolic ) which indicates the intentions of ending up with USE. No European Country would be willing to give up their sovereignty, but after a series of crisis, chances might increase to do so.
I’m not fond of the EU, but a USE would be much better in my view.
As in the USA, each European nation would become a state.
….A parasitic, freeloaders benefitting, fairweather show, a cheap debt driven la la land….thats what the EU is …..
Even if one, if for no other reason than trying to fit in with the champions of The DumbAge, pretend that “stimulus” can even theoretically do any good: The whole purpose of any of it as proposed, is to entrench economic structures which existed before everything changed.
Instead of facilitating the flexibility required to shift resources to deal with problems faced today. Currently, and only slightly simplified, there exist only two economic goods in addition to food and shelter: Ventilators and distance from others. That’s it. Not oil, not “assets”, not “luxury cars”, not cruise ships, not “access to banking”, not passenger planes. None of those have any value. Just ventilators, and distance from others. That’s it.
Yet every single “stimulus” plan, is solely focused on fighting, tooth and nail, against whatever tiny remnants of a free market that still exists, screaming for this reality to be recognized, and hence resources to be repurposed.
Not because doing so creates any economic value, hence contribute in any way to economic growth. But simply because the idiots who deem themselves the “Elites,” have the entirety of their privileges tied up in “ownership” and “control” of this yesterday’s mass and mess of, even given every privilege of every doubt, outdated structures and institutions. None of which are any longer any more relevant, than buggy makers and blood letting “hospitals” were by the jet age.
As I recall, the Euro Financial Stability Fund, utilized to bail out Greece, sold AAA rated bonds backed by the credit rating of sub AAA members. The proportion each country ‘donated’ was based on the ECB capital key. Thus Italy at about 19% (more now since the UK is out) backed 19% of the AAA bonds with its subprime credit rating.
I assume the ESM will work the same which means, in order to sell the bonds to raise the money at a low enough interest rate to make it feasible, investors are going to have to BELIEVE Germany and the Dutch are on the hook for entire amount. The Dutch will make it plain they are only responsible for their share and I doubt Merkel has any political capital left to make such a pledge ergo the bond sale will only work if the ECB buys the entire issue. A circular financing fraud.
the ministers realised they were “standing at the edge of the abyss”
…
No no no.
Be more imaginative. They overused that phrase last go round.
How about:
The horror that elites might have to live like the common folk … and actually do something USEFUL … rather than shuffle paper and collect rent / interest / dividend / royalties.
“…and they stared into the abyss, and the abyss stared into them, and they realised that they were the abyss.
Then the abyss called out “More Money” , and they all called out “More Money!!!”
And so it came to be, for the abyss was hungry for money.
Yea be warned, those that oppose the abyss, for the ferryman must be paid or he shall not take you to the feast on other side, and no longer will your champagne flow like water from the mountain stream, nor your caviar be served on nice bread “
“No one knows how it works.”
…
Ms Pelosi … Ms Nancy Pelosi … please step up to the mic …
“We have to pass the bill so that you can find out what is in it”
…
Gosh, you just have to admire how government works* …
*insiders write ______ legislation to enrich themselves while politicians scratch their heads.
“innovative financial instruments” = free money for the rich.
Yes. The more opaque and convoluted the more assured you can be insiders scoring ala Michael Jordan over Michael Moore.
More problematically than “the rich” in general: For the incompetent, useless, value destroying, rich.
People getting rich from creating value, is no evil.
People making money from not so, is.
As every penny idiots “make” by institutions of government pumping up “the markets,” or from their, always decaying, “home,” or from chasing ambulances while the run amuck court systems of a totalitarian state forcibly transfer wealth their way; has to, by mathematical necessity, be stolen from someone else. Ultimately from someone else who is creating value.
When the negative-value-add leeches make money, it specifically means shifting resources: Away from competent people with enough brains to do something valuable with the money. To half literate dilettantes who are destroying value.
That’s how societies go from spearheading the Jet Age and landing on the moon without even the aid of proper computers, to having near as many deaths from a virus infection per day, as a bloody communist country with three times the population have in total, while their planes keep falling out of the sky. To the backdrop of armies of illiterate yet privileged monkeys incapable of building a ham sandwich, running around screeching about “holding someone accountable.”
Avid Remainer never did check in.
These articles further what universal basic income/income support plans are in Spain. Same story almost, different sides of government arguing the meaning
Mish, please take a look at what % of the EU budget Italy contributes (net) vs Nethrrlands and Finland both of whom stand in the way of helping Italy. It’s a joke.
Germans obviously contribute the most.
If I was Italy I would cut contributions to that of Netherlands + Finland combined and see how Brussels likes that.
Italy is about the two combined
and that is not per capita.
Italy contributes 0.35% of its GDP to EU if my calculation is correct. I don’t see a reason for joint issuance unless Italy’s financial reality just doesn’t permit expansion of spending or issuance of further debt, which is just a reason for NOT going joint issuance, but instead to be taking monetary policy back into national control. At least Italy would not have the (EU faked) restraints on issuance, and Holland would be able to follow its own discipline.
The key is the per capita contribution and given the Dutch population is less than 30% of Italy’s, they contribute way more. Per capita, the Dutch contribute more than anyone, including the Germans. Maybe the Dutch are worried that they will also pay an outsized portion of any mutualized debt. I’m American, but all of my grandparents still spoke Dutch and the phrase “going Dutch” exists for a reason. I think you’re correct that if joint issuance is needed the Dutch will be even less inclined to consider it.
They’re all one happy family, why shouldn’t the northerners join in to help their southern brothers and sisters? They all piss in the same pot.
Maybe he just took a new name; hard to be a Remainer now…though he did have a unique writing style.
Once a remainer always a remainer maybe. He did warn that the move to a deal was not the end of the story, so he’s probably beavering away with the likes of launching polls like have emerged to have negotiations ( and exit ) delayed due to the epidemic…I think really those opposed are now looking for a downfall of governance in UK leading to change of direction.
As a small country, the Dutch will be overwhelmed if larger southern countries defaulted on mutualized debt. The Dutch would likely be forced to default too, or at least agree to let the ECB crank up the printing press, and they don’t want to go there. It’s one thing to give money to your poorer neighbors to help them, which the Dutch are already doing more generously than anyone else. It’s another thing to give your neighbor a credit card with a very high limit and trust them to use it wisely.
Same as the US }stimulus” package,95% goes to banks (TARP2.0)and Wallstreet and whatever is left (after the politicians take there cut) goes to “fight the pandemic” lol!