European Social Democracy Is Soon Coming To An End

1) … The rise of an European Finance Ministry with vetting power over National Legislatures as well as the appointment of European Emergency Financial Managers to implement austerity policies to correct wayward Eurozone fiscal transgressors via a federalized Eurozone is the likely outcome of the EU sovereign debt and banking crisis.

Given that a Ministry will oversee Europe fiscal operations, there will also be a Minister, he will be the Seignior, who will be accompanied by Europe’s Chancellor, the Sovereign.  These two will provide a new seigniorage, not based on debt, but rather based upon their combined word, will and way.

Where as the seigniorage (moneyness) of  Neoliberalism was based upon the floating currency regime of Milton Friedman and carry trade investing; the seigniorage of Neoauthoritarianism will be based upon Leaders Framework Agreements which wave national sovereignty and effect corporatism as well as regional economic governance and Regional Trade Pacts not based upon the dollar but upon regional currencies.

Globe and Mail reports ECB Chief pushes for European finance ministry and in article Trichet talks tough about euro misbehaviour reports that Lax oversight of countries’ economic policies led to EU crisis. “Our economic governance framework has so far not managed to guarantee the implementations of sound policies in all member states,” Mr. Trichet said Monday in Montreal on the opening day of the 17th annual Economic Forum of the Americas. Reforms being discussed to address the structural weaknesses of fiscal and macroeconomic governance don’t go far enough, he said. “Countries in the euro area that violate our common rules should be accountable for their policies, and freedom of action and flexibility in this field should be reduced as much as possible.”

Open Europe reports in an interview with Les Echos Portuguese Prime Minister elect Pedro Passos Coelho has said that he is prepared to “go beyond” the conditions attached to the EU/IMF €78bn bail-out, as he intends to create an “independent budgetary authority” with “very broad powers”  to supervise the implementation of the government’s austerity plan.

The Guardian reports Why the right won again: As Portugal’s ruling Socialist party is swept from office, the depth of the crisis now afflicting the European left is clear. Ominously, the toppling of prime minister José Sócrates leaves social democrats with only four heads of government among the EU’s 27 member countries.

Portugal’s election took place during the most severe recession in the country’s history and against the backdrop of soaring unemployment and the impending implementation of a €78bn EU-IMF bailout. The socialists were defeated by a combination of demands for dramatic retrenchment in state spending by the conservative leader, Pedro Passos Coelho, and unprecedented disillusionment with the political establishment.

The inexperienced Coelho managed to cast the socialists as profligate spenders, good at distributing the spoils of prosperity but poor at generating growth. He was aided by Sócrates’s failure to acknowledge the depth of Portugal’s crisis, and his hesitancy in spelling out the consequences of austerity. The long denial of the need for a bailout destroyed the left’s electoral chances in a country where the trauma of IMF intervention in the 80s still rankles.

Also decisive was a voter abstention rate of more than 40%. Exhausted by the crisis, pessimistic for the future and lacking trust in all politicians, an unprecedented number of voters shunned the polls.

Open Europe reports  €444bn exposure to weak eurozone economies risks bankrupting the European Central Bank. The FT features Open Europe’s new report, published yesterday, highlighting that the ECB has €444bn in exposures to Spain, Italy, Portugal and Ireland, as well as Greece. The article quotes the briefing, which argues, “Hefty losses for the ECB are no longer a remote risk,” with Greece likely to default within the next few years – even if it gets a fresh bail-out package from the EU and IMF. According to Open Europe’s estimates, the ECB’s exposure to the Greek state and Greek banks stands at €190bn.

Should Greece restructure half of its debt, which is needed to bring down the country’s debt to sustainable levels, the ECB is set to face losses of between €44.5bn and €65.8bn. The report concludes that by propping up insolvent banks and governments, the ECB risks widening the scope of the crisis in the long-term.

According to the ECB’s rules, any losses it suffers will be shared out between itself and the 17 national central banks of the eurozone, which share their balance sheets with the ECB. But how this would work in practice is unclear. Open Europe Director Mats Persson is quoted in the IHT saying, “Huge risks have been transferred from struggling governments and banks onto the ECB’s books, with taxpayers as the ultimate guarantor.” The research is also cited by the Telegraph, FAZ, FT Adviser, City AM, Belgian daily De Morgen and several financial newsites.

The Irish Times quotes Hans-Werner Sinn of the Ifo Institute for Economic Research in Munich, arguing that the ECB should unwind its operations in peripheral eurozone economies. “The longer the cheap money drug is indulged in, the more painful the withdrawal. Wait too long and no cure will be possible,” he said. In an interview with Wirtschaftswoche, Sinn also said: “If the pace of credit transfers to countries in crisis, which is measured by the target-balance and was recently €100bn per year, is kept at the same level, the ECB will be finished within two years.”

At a debate in Amsterdam yesterday, outgoing Dutch Central Bank Governor Nout Wellink warned of the consequences of a Greek restructuring for the ECB, noting that “Restructuring causes big problems for the ECB. It won’t be able then to pursue its regular liquidity operations.”  Open Europe press release Open Europe research FT FAZ IHT Telegraph Kathimerini Corporate FXGFS News FX StreetFT Adviser Irish Times Wirtschaftswoche

Open Europe reports German CSU demands transfer of powers back to member states in response to Trichet’s comments. FAZ reports on a memorandum drafted by Alexander Dobrindt, Secretary-General of the CSU, the Bavarian sister party of German Chancellor Angela Merkel’s CDU, which argues in favour of transferring powers back to Germany from the EU.  The memorandum responds to ECB President Jean-Claude Trichet’s proposals last week to set up a single EU finance ministry, which according to Dobrindt would “reduce democracy and threaten sovereignty”.  He argues that “we should stop the automaticity by which Brussels constantly gains more power.”  He further criticises the role of the ECB in the eurozone crisis saying, “it should be questioned whether the purchasing of government bonds is in line with the legal statute of the ECB”.  Meanwhile, EU Internal Market Commissioner Michel Barnier has said that it is necessary to “go further in creating a unique post of European Finance Minister.” Bloomberg Market Watch AFP

Open Europe reports Der Spiegel reports that 4,500 dead Greek government employees continued to receive their retirement payments up until now, causing an estimated waste of €16m per year. Bild Spiegel

Chart of the Euro, FXE, shows it rising in morning trading in front of awaiting indications from Federal Reserve chairman Ben Bernanke that interest rate hikes aren’t likely anytime soon.

2) Business Insider reports 8 Reasons Why Bank Stocks Are Getting Crushed Again.

Keywords: European Finance Ministry, Jean Claude Trichet, Neoliberalism, Sovereignty, European Economic Governance, European Emergency Financial Managers, KRE, FXE, RWW

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