Mission Impossible?
When it comes to the EU, I am skeptical of headlines like this: EU leaders struggle with ‘mission impossible’ at deadlocked recovery summit.
The leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out of its deepest recession since World War Two, and what strings to attach for countries it would benefit.
Diplomats said the leaders may abandon the summit and try again for an agreement next month, but as they negotiated into the early hours of Monday a deal still looked possible.
Dutch Prime Minister Mark Rutte’s position reflects political realities in his country, where voters resent that the Netherlands is, proportionately, among the largest net contributors to the EU budget.
He and his conservative VVD party face a strong challenge from far-right eurosceptic parties in elections next March.
An attempt to reach a compromise failed on Sunday. A deal envisaging 400 billion euros in grants – down from a proposed 500 billion euros – was rejected by the north, which said it saw 350 billion euros as the maximum.
Italian Prime Minister Giuseppe Conte accused the Netherlands and its allies — Austria, Sweden, Denmark and Finland — of “blackmail”.
The Issue
Italy wants free money, the bulk of which would come from the wealthier nations.
The Problem with Deals
The EU is known for last minute deals. In fact, there is seldom if ever a deal except at the last moment.
This happens because all 27 nations have to agree to make changes of any substance.
What Different Time?
- Lagarde’s Unusual Opinion
- Brexit
- More than the Usual Splintering
Lagarde’s Unusual Opinion
European Central Bank (ECB) President Christine Lagarde said it would be better for the leaders to agree an “ambitious” aid package than to have a quick deal at any cost.
Lagarde’s comments suggested she was relaxed about the possibility of an adverse reaction on financial markets if the summit fails, especially as the ECB has a 1 trillion euro-plus war chest to buy up government debt.
The EU never agrees to a “quick deal”. Bickering over this summit has been going on for months. The summit was supposed to finalize it.
However, the fact that the ECB would rather wait for something that may never happen increases the likelihood of no deal.
The idea that a 1 trillion euro bond buying effort will fix anything is of course ludicrous. But it does provide a relief valve that the EU is still OK.
Brexit
Brexit is a minor concern here and not really related except psychologically.
The world did not end when “no deal” was the result of two years of negotiations.
More Than the Usual Splintering
Even as Germany and France drift together in ways, Italy has drifter further apart from overall EU goals. So have Poland Hungary. Austria, Sweden, Denmark and Finland over various issues.
In this case is it is the haves vs the have nots, but there are different splits over things like immigration and working out a Brexit WTO deal with the UK.
It is harder and harder to get all 27 nations to agree even though Chancellor Merkel, on her way out the door is more wilkling than usual to make a compromise.
No Surprises Either Way
I will not be surprised by a deal, but it will not be the deal Lagarde hopes for.
Instead, assuming there is a deal, it will be based on smoke, mirrors, and promises that morph into outright lies.
For how the EU operates on smoke and lies, please see my report on how the EU’s Climate Change Effort is Comically Exaggerated.
Mish
It has to be a grants or nothing. Why accept conditions when every EU sovereign can borrow at almost zero. The real losers are the savers, and those who attempt to create wealth the old fashion way.
EU is an aggregate of nations with very different state of development, very different interests, and cultures. in order to possibly succeed, they must all agree for a political and economical union, a unified fiscal policy, and a shared sovereignty. otherwise it’s just chacun pour soi, where everybody just wants to get something From the union, nobody wants to contribute to it.
EU is good in concept but deeply flawed in execution. I doubt we will ever see individual national interests put aside for the good of the EU.
The sums need to be much bigger to do something about the Corona slump, but debt mutualization and Eurobonds are folly without fiscal integration. The nations cannot decide on fiscal expansion on their own because of the Euro rules (max 3% of GDP deficit and 60% debt), which can only be relaxed temporarily. But countries are unwilling to share the debt if they have no say over tax revenues and government spending.
In Northern Europe they want the ability to make people in the south actually pay the taxes they owe, move the pension age beyond 65 (let alone 50 or 55), and change how the labor market functions. Nobody here wants to work till they’re 68 to help pay for Greek or Italian women getting pensions at 50 and all sorts of entrenched labor rights without performance obligations.
You will end up doing that type of thing. Southerners, if they play it right, have you by the balls.
Yet more anti-Latino racism?
“The EU never agrees to a “quick deal”. Bickering over this summit has been going on for months.”
…
Well, the US and North Vietnam retired that trophy:
“As these preliminary discussions about who would meet came to a conclusion, they were then followed with additional talks about how a meeting might be held. These discussions, which began in November 1968, were centred on questions about the shape of the conference table, how many tables there should be, and how they would be placed. These discussions became known as the ‘battle of the tables’ and would last ten weeks until mid-January 1969 as fighting continued to rage and Richard Nixon won the presidential election. From the start, it was recognized that a triangular table (with the North Vietnamese/NLF combined but the US and South Vietnamese separate) would be a non-starter as it would imply that the Communist side was outnumbered two-to-one. North Vietnam wanted a square table in order to provide further legitimacy to the NLF, and also suggested four tables arranged in either a circular or a diamond pattern. The American preference was for a two-sided table or two rectangular tables. The North Vietnamese countered by suggesting a round table. Whereas the Americans supported the idea of a round table on the basis that people sitting at the table wouldn’t have any position, Saigon then protested that a round table meant that everyone was equal which would imply that the NLF delegation were equal to the South Vietnamese government.”
MUCH more
https://defenceindepth.co/2017/05/19/stuck-in-endless-preliminaries-vietnam-and-the-battle-of-the-paris-peace-table-november-1968-january-1969/#:~:text=The%20deadlock%20was%20finally%20broken%20by%20a%20Soviet,more%20and%20no%20less%20than%204.5%20centimetres%20away%29.
Who is blackmailing whom?
Macron is accusing the Dutch of acting like Brexit Britian.
That’s the pinnacle of the insult he can use.
France needs a bail-out. A massive bail-out and he knows it. He needs a tit to suck as soon as possible.
Italy comes out as the poor relation but really, by importance of economy to the EU, France is it and Merkel will throw Italy under a bus but can’t afford to do that to France.
Its all for France.
Good luck to the frugal 4.
The final bill will need to be much higher. > €1Trn and out of northern countries.
Its depression level and not finished yet.
They will sheer the Dutch, Germans et and muddle through.
The sheep are kept in the dark and bullshit piled on top and wont realise until they hear the clippers.
Mushroom Sheep.
They make some fine cars there.
Thats a matter of opinion.
“They make some fine cars there.”
French cars haven’t been available in the US decades. I would like to see Peugeot come back, which they allegedly are (or were) at some point in the future. Renault, not so much.
I thought eu masters said – when going gets tuff – YOU LIE
all is NOT well in eu masterland – and turncoat Frah Merkel can’t change it
There is not a great deal of press on this in Europe where I am reading, like it is an ongoing negotiation that gets updated occasionally. For some reason it is kept quite low key, in fact the whole state of the economy is just sort of pending for now. In reality several countries are going to have to rocket their deficits if they hope to balance out the drop in gdp, and this would be over several years. The ecb might not place conditions, but spreads rise whenever there is opposition and in this case maybe the german constitutional court challenge to the ecb will be played ? It will look a bit odd for the “prudent” countries if after no deal the rest just go and load up at the ecb anyway. All I make out for now is that all sides are more concerned about what strings are attached, whether mutualisation or fiscal oversight.
They don’t want you to know until there is nothing you can do about it.
Last thing they want is the “populations” getting uppity and expressing an opinion.
After the deal is done you will be told and action taken to sell it and prevent rebellion at the ballot box in the Northern countries.
You are mushroom sheep.
Im in Europe but not directly part of all this (i.e. not EU nationality), but you are right because I think most people don’t really have an idea of what it all means. Most tend to just think “how much central funds are coming our way”, they never contextualise it, it helps distract from addressing the actions of their own government like there is a solution from EU . In the frugal countries their eye is on “how much they gonna take from us this time”, gives them a sense of righteousness but equally they don’t realise how corrupt or convoluted the equation actually is, so it distracts them also in that they might feel satisfied by rejection of funding but it just happens by another way instead. I’ll go with the north though because the less power handed openly to EU the better. The balances in Europe have been a mess for a long time so it isn’t just a “virus bailout” but instead an effort towards open mutualisation and fiscal/economics oversight of member countries. A lot of people in the south are fine with that as long as they get paid, by the time unemployment heads over 20 % they are going to be completely at the mercy of EU and/or the ECB. Not sure what will happen really, obviously further takeover is the idea, and southern weakness benefits the north in that sense, but society is less at ease lately for obvious reasons and I don’t think EU is going to be able to present itself as the release from that.
Wasnt Italy the country that hid all its debt prior to joining the EU and then showed the ECB the real books after they were admitted ?
Italy didn’t cook the book before joining the EU. Maybe, and it is about time, people have to start thinking that the only solution for Europe is no longer being a kind of meaningless aggregation of state but rather a State like the USA which would solve 99% of the issue else would be better anyone on its own with their ccy and play as they like
It won’t solve the issue when there is such disparity. It will just put a lid on a volcano.
When each realises what others are getting – pension, pension age, benefits.
Levelling the playing field = winners and losers.
Only way it works is if losers can’t do anything about it – the old, weak, economically disadvantaged.
Norrh need to.backstop it all to the tune of trillions of €.
A US federal model wouldn’t solve the problems. The US still has the same issue; productive blue states like NY, MA, CA, and IL are forced to subsidize low productivity red states like KY, AL, MS, FL and IN.
That resentment grows even worse when the productive states demand federal aid and receive little to none in a crisis… Yet are expected to rush to the aid of the net consumer states.
Not saying it will solve it but will mitigate it for sure. In the US there is a federal gov’ment that can borrow money and play a fiscal policy. In EU it is impossible and eurobond without any central government is the most absurd think I ever heard…who is liable? haven’t ever seen a bond issued by the german carmakers (BMW and VW issuing a common bond)
Again, if the assumption it is as we grow and you are in stagnation then this will be forever then I guess that the roman empire was supposed to be still here, which is clearly not
I still maintain that it simply shifts bankruptcy from nation states to states (and then eventually the entire supercountry).
Hence I should buy CDS naked on FED fund (treasury bonds)? or that is just true if we are talking about USE but not of USA? just to understand…
There will be winners in some area as well as looser in othere areas: i.e. Italy might need to reduce massively their benefits, pensions age and so on, while other country might need to stop an unfair palying taxes on a single currency area. And those are just two examples. A lid on a vulcano would be issuing mutual debt whithout any central government that can control the fiscal policy. It is a political union (a State), not a currency union the only solution.
The fiscal policy is the only tool and a fiscal policy can be implemented by a State not by a meaningless aggregation of state. Fiscal policy is the only mechanism that allows a permanent transfer between the growing and non-growing countries and it is not said that the current situation (of growth) will be the same in the future. It can flip
Yes, but it will only happen if they stop people having a vote! Some nations will put people in power to stop changes they don’t want. It will work if it becomes a dictatorship from Brussels.
It doesn’t need to be a dictatorship there is no need for it to look like a dictatorship more than it looks like now
What is needed is political courage rather than cowardice politics
It is becoming a dictatorship and average pleb has less and less say.
The answer is decentralisation, wont happen. The current path is only leading one way – cental dictatorship to the satellites.
When the plebs wake up there will be a backlash as some areas will have nothing to lose. Those with something to lose will also look to block without change others wont accept.
hence, have a referendum and as I said it will be ppl chioce then you can create a State. All others stuff is futile like resistance to the Borg
Zero chance as if the entire truth was laid out on the table too many would say stop. The entire truth, not just edited highlights of the good stuff.
Italy et al sold their soul when they joined the Euro but no one told the whole story to the plebs. It was all bunny rabbits and kittens. Not trapped in an arrangement where they would never be able to compete leading to stagnation, poor family formation and ultimately awful demographics and the end if their nation – that is what is ahead.
As I recall, resistance to the Borg was only futile in their their own hive mind … not in reality.
It was not futile just for the federation not for anyone else. And EU is far from any look alike of the federation
“they can have a referendum on the whole eurozone, who agree is in, who doesn’t is out. ”
It’s easy to be “IN” for those who at the same time vote themselves benefits which there is no money to pay for; but which are instead supposed to be paid for by other people’s children some time in the future.
So unless such a referendum is scheduled for every 4 years or so, “well, someone else’s grandpas voted for you to pay for their circumnavigation sailboats. It was a democratic vote and the voters have spoken, so shut up, toil and pay” doesn’t really get anywhere. At least nowhere worth going.
As a general principle, flexibility trumps all. The more rigid you make things, the greater the tensions which builds up. Until everything is completely locked up, and then it eventually breaks. The EU is already getting towards that stage, because of too little flexibility. Doubling down on making things even more rigid, in yet another harebrained, economically illiterate Hail Mary aimed at “saving the system”, when the system itself is what prevents solving near all problems quickly and cheaply, just makes it worse.
“It’s easy to be “IN” for those who at the same time vote themselves benefits which there is no money to pay for; but which are instead supposed to be paid for by other people’s children some time in the future.”
…
Yes. Marco makes some valid points. Ones which needed to be addressed (agreed upon by ALL) prior to EU inception.
Good luck getting all the horses back in the barn … after having fled it years ago …
“It’s easy to be “IN” for those who at the same time vote themselves benefits which there is no money to pay for; but which are instead supposed to be paid for by other people’s children some time in the future.”
I do not attempt to defend italy’s lack of fiscal responsabilities but still there is something ppl managing politics in EU should remember. 1992 the EMS break down, Italy burned almost all ccy reserve and with its own ccy came out of a mess. You guys want that to happen agin? A break down of the EUR means Lira (or call it as you like) will devaluate by more than 20% and other ccy will revaluate by the same amount. Italian debt (BTPs) will be converted in local ccy – the italian law has been ther for ages, is in the codice civile, and anyone that bought BTPs will have an implicit haircut (the debt holder, not Italy) of at least 30%, if you’re lucky. There are Salvinis in Italy that will be happy and waiting for that (the economic northern league “intellighenzia”) and to avoid this the only solution is a political union.
If you keep it as a battle between liberal and socialist at EU level then good luck to Europe as for what it will happen next we have as example the break down of the Gold Standard. And it will mimic exactly that, you can use it as a proxy
I am Italian, but have been living in LDN for two decades and when I am down there I can feel local people starting being annoyed.
Now think for one second. Are those migrant coming to Italy to stay there or because they hope to go around EU? Now think some more, they can’t go around because they have no paper. Now think some more, what if Italy all of a sudden decide (with a more left-ist gov) to give those people Italian passport? Will then the northern country close the border and forget about the Shengen treatry? what will happen then next? They will be italian citizen and then you will not allow them in or cross the border in the Eurozone basing the who can and who can’t on the skin colour? Italy for all those migration is turning racist (the mass) and not sure the more “civilised government budget aware” liberal countries will be able to cope with the eventual social problem that 99% of the desembarck in Italy will be able to freely move around EU hence go to those countries where they won’t be forced, as a only job to pick tomatoes or beg in front of a supermarket? Will the nordic countries will then be able to cope with the deflationary pressure on salaries coming from those migrants? Note that the same deflationary pressure was brought in the UK in the construction sector by migrants from eastern europe (countries in the EU) which lead to the brexit vote
Yes, Italy is somehow spending in their children future behalf, but does that not just on monetary term as it is put now it does it also on social term, and does that in behalf of all Europe. Never forget that
“Fiscal policy is the only mechanism that allows a permanent transfer between the growing and non-growing countries”
Meaning, it is the only way (not really, as long as the ECB can pretend all debt of even the tiniest bankrupt country is money good…) to rob the productive for the benefit of the not-so. To be rinsed and repeated, until there are no productives left to rob. As was the case in Argentina, and the US.
In my mind politics or fiscal policy it is not robbing anyone. As said the assumption is that the oranges will keep their growth path forever and Italy is meant to die. Might be the case but as far as i know the sum of private and public debt looks far worse for the orange than the italians and give that a state is made up by ppl and is not an abstract entity I would be concerned of the overall debt of a country
Without looking it up (therefore maybe I’m wrong) I’m pretty sure Goldman Sachs at some point helped Greece hide its true debt picture from EU (might have been a few years back when Greece had it hand held out for Troika bailout).
Yes, but it was further back, in the years leading up to the introduction of the Euro, so around 10 years before the troika stuff started. There was a complicated deal with some bank in London and underwriting of interest rate swaps, etc. It wasn’t exactly hidden though; many EU bureaucrats were somewhat aware, but everyone wanted Greece as the cradle of democracy and all that on board.
GREECE cooked the books with some help from Goldman Sachs …..
The true cause: a gargantuan amount of hopium and fanfares for the great EU empire that the world has ever seen. Everything else is details.
Default on all debt (illicitly) racked up as part of the fictionalization experiment of the past 50-100 years. Do that, and they’ll be just fine.
It’s a highly advanced country. With plenty cutting edge industry. Problem is, like in America and elsewhere, that industry is being saddled with the cost of propping up and ever growing army of zero-to-negative-vaue-add leeches in the FIRE, government and “legal” rackets. Which has rendered it increasingly uncompetitive.
But that is also all which has rendered in uncompetitive. It’s not that Italians aren’t hard enough workings nor good enough at what they do. No-one can remain competitive for long, if they are being robbed to always increasing degrees, simply i order to prop up deadweight leeches in ever greater splendor.
Clearly you’ve never been to Italy. Southern Europe in general is one of the most shall we say laid back work ethics around the world. Warm weather and a crystal blue sea will do that to people. It is a vacation destination for a reason.
I’ve been to Italy plenty. Mainly the North. And while Northerners seem to agree with you wrt their countrymen further south, there are plenty of southerners keeping the northern industrial machine ticking.
And the North is very advanced. But it, like everywhere else in The West, is being destroyed by having to feed ever more rapacious FIRE sector and government leeches.
It’s hard to run a competitive operation in a competitive industry. Even if your workforce has “work ethic.” Being saddled with having an ever growing share of your value-add debased away, to pay for “home appreciation” and “portfolio appreciation” for completely useless deadweights producing nothing at all, is simply not sustainable anywhere.
Even Germany is struggling now, with housing prices having gone up, and the FIRE sectors growing, since the ECB went completely insane in the aftermath of 2008. There’s simply no way around it. There’s only so much value industry can add in a year. Every penny of that value which is redistributed, from those who created it, to people who created nothing but instead just sat their in a decaying house, or who mindlessly sit around wasting their own and others’ time picking random numbers, is a penny which is no longer available to sustain and grow the businesses and workforces which created them in the first place.
This is one of the commonly clearly stupid stereotype about Italians, the same stereotype of those that watching The Godfather thinks all Italians are Mafia Spaghetti e Mandolino. If we both were politicians and we were in a room talking and you would say that to me I would clearly and immediately give all the immigrants we keep there in behalf of EU a nice italian passport without warning you, then we can have a chat once all of them will come to knock at your border and you can’t send them back to Italy because of the Schengen treaty.
This is the attitude of the rest of EU towards Italian which start to piss Italians off which remain pro European despite all. The thought we are superior and better than you lazy Italians and continuing free insult to a whole population. So if you wanna say Italian politics is crap then go for it, 95% of Italians will agree, but that you say 60mln ppl are lazy go over in a square in italy to say that or in a fishing port at night when boat are coming back from fishing or to the factory that makes tod’s (which is not north).
I can’t believe what you wrote, so unpolite and silly, but in the end what should I have been expected from someone that is confusing Greece with Italy when talking about cooking the books? So a question comes to my mind: are you naked short BTPs or have you bought CDS without holding the underlying asset? That could explain it all
Casual_Observer I am Italian, living out of Italy for 25 years.
When I left Italy was the 7th most industrialised country in the world, it had massive public debt that was routinely moderated/adjusted by devaluing the lira.
It was dysfunctional, but it worked.
Take away the possibility of devaluing your currency and you have the current state, simple.
The members of the club that thought that being ïn bed”with Italy would be ok , knew well that they were kindding themselves, but did it anyway.