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Understanding Europe's "Austrian" Solution - The 'Merkel-Draghi' Wager
Authored By UBS' Larry Hatheway,
The Merkel-Draghi wager: Will it pay off?
Tracking the evolution of the Eurozone crisis has been like hacking your way through a dense jungle. The number of countries, political actors, policy institutions, and policy responses - not to mention acronyms! - makes seeing the forest for the trees all but impossible. In what follows I propose a framework to lift the field of vision and thereby gain some perspective. That perspective ought to help put into context the importance of last week’s Italian elections for Europe’s future.
When the Eurozone crisis first broke some four years ago, most analysts quickly and correctly concluded that the Eurozone was an incomplete monetary union. Two camps then emerged - those that thought that saving the Eurozone required extensive political and fiscal integration, and those that believed that integration on the scale required would be impossible, with the result that the Eurozone would have to shrink via exit of one or more countries. Politics, however, is the art of the possible. And neither rapid integration nor breakup were or are politically feasible options for Europe’s political classes. Instead, what has evolved is what I dub the ‘Merkel-Draghi wager’. To be sure, it is not simply the creation of German Chancellor Merkel and ECB President Draghi. However, they are the chief political and policy protagonists in Europe and, surely, without their backing the policies now in place could never have been adopted.
The ‘Merkel-Draghi wager’ began with the determination that capital markets would not dictate Europe’s future. The realities of huge external imbalances, sovereign stress, and financial insolvency would not be allowed to manifest in either bank runs or sovereign default that would then precipitate a Eurozone breakup.
As a consequence, a series of increasingly robust lender-of-last-resort facilities were introduced, which have prevented either a Lehman-style bank collapse or a sudden stop in sovereign financing. For banks, the ECB’s balance sheet replaced disappearing wholesale funding markets, thereby bridging the financing gap between deposits and loans. For sovereigns unable to borrow in capital markets, support was provided by the troika under the framework of EFSF (now ESM). And, as of last year, the ECB’s balance sheet also stands at the ready with its yet-to-be-activated Outright Monetary Transactions (OMT) program.
In short, the policy response has not been one of explicit fiscal or political integration, but rather the establishment of two massive and effective lender-of-last-resort facilities.
So where’s the wager? The bet is embedded in the rest of the narrative. With growth-supporting fiscal transfers or debt mutualisation ruled out by national politics, the remainder of the story is about an ‘Austrian’ solution to cleanse Europe of excessive fiscal deficits, narrow gaps in competitiveness, and shrink external imbalances. Countries with large budget deficits are mandated to cut them swiftly, virtually irrespective of the scope and depth of the recessions that ensue. Structural reform is advocated for uncompetitive countries, though in the absence of such policy initiatives soaring unemployment and falling wages will act to restore competitiveness—the internal devaluation.
The consequences are plain to see in the extraordinary declines in per capita incomes in much of Europe (though, notably, not in Germany), as shown in Chart 1.
Consistent with collapsing output and domestic demand, current account deficits in ‘peripheral’ Europe have narrowed or disappeared, even if Germany’s current account surplus has largely remained intact (Chart 2, preceding page). And consistent with soaring unemployment, unit labour costs in ‘peripheral’ Europe have begun to decline, narrowing previously large gaps in intra-Eurozone competitiveness (Chart 3).
The ‘Merkel-Draghi wager’, then, is political gamble of historic proportions. It is a calculated bet that a policy prescription of robust liquidity buffers coupled with internal devaluation and fiscal consolidation will work. Equally, it is a view that the historical, cultural, economic, financial and political forces that have brought Europe together in the post-war era will prove stronger than those unleashed by the wrenching social dislocations associated with ‘Austrian’ economics that could one day threaten to rip apart the Eurozone.
So far, the ‘wager’ is working in economic terms, as the preceding charts attest. Indeed, if the same policies can be kept in place for another few years, relative unit labour costs will revert to their positions at the beginning of the millennium, restoring the competitiveness of ‘peripheral’ Europe and quite possibly initiating a re-direction of investment flows and economic activity to Europe’s most depressed economies.
Or at least that’s the hope. And that’s also where the recent Italian elections come into play. While the protest votes registered in Italy one week ago were multi-faceted, it is also clear that they included a repudiation of austerity and structural reform, plainly evident in the poor showings of Prime Minister Monti and his centrist supporters.
The relatively muted response of markets to the Italian elections is, in that regard, somewhat puzzling. Perhaps market participants view the outcome as uniquely Italian, with little significance for possible political change elsewhere. If so, investors need not be overly concerned, insofar as political paralysis in Italy, where fiscal adjustment is already well advanced, is not as concerning as it might be in, say, Spain.
But to the extent that the election outcome in Italy portends similar political backlashes elsewhere against the ‘Merkel-Draghi’ policy prescription, the implication is that investors and politicians alike will have to reconsider the odds that the ‘wager’ will succeed and, if not, whether Europe has a ‘Plan B’ to replace it.
And what might ‘Plan B’ look like? One variant would be explicit fiscal transfers and debt mutualisation. Another might be debt monetisation. Put in those terms, it’s pretty easy to see why Merkel and Draghi preferred to roll the ‘Austrian’ dice.
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Most Europeans I know (not many) are VERY bearish on Europe, then again, most are in Italy...
A number of my golf buds (another group separate from the uber-liberals and neo-con group) are of Brit extraction. They think the EU and Euro are totally screwed. But then again, they're Brits and have a casual embrace of the French akin to wishing them Ebola and somewhat milder distain for the rest of Europe.
Biased sampling, I guess
Altho most if 'em do find the Krauts A-OK.
The EU/Euro is a cancer cast on Europeans by bankster families and evil politicians. They always do this to loot the wealth of the citizens and have them go to war and kill each other. The same cycle over and over.
As bas as Europe is - at least they do not have Obama/Mugabe.
The Simpsons is even funnier in German.
The economic reality of most European countries is much worse than it appears in the post. Again, overoptimism distorts the actual diagnosis of the crisis in Europe.
Almost seems like the Duke Bros. bet in Trading Places
Merghi?
By all means, there is not much "Austrian" in these two...(no Hayek, no Schwarzenegger)...
The bankster speaketh with a forked tongue. The real solution for the banksters and their political puppets is full control totalitariarism followed by mass genocide and division of the world into private fiefdoms. Any spark of democracy or national sovereignty cannot be allowed.
Checking deposit base gaps...
Go go Grillo!
Go go Nationalism!
The EU is nothing but a banker contrivance to rape the citizenry; oppresion via technocrats - get the people's money as far away and as in as big a quagmire as possible - then impose "austerity".
I wonder just how fast the EZ would have dumped Greece, or any other insolvent member, if a Greek debt default
would not have cause their Ponzi scheme to collapse.
Italy will fold. There will be political drama on a frightening scale. Some will pay the ultimate price. The Lira will return.
Italy will win big by going out soonest. Not their banks or the investors, just the people.
Simply can't see it happening. Many of you are confusing wishful thinking with Realpolitik. The only outspoken Euro-exit supporter got 25% of the vote, while Berlusconi "The Clown" doesn't give a fuck, as long as he has his get-out-of-jail-free card and a 15 y.o. giving him a hand job). That doesn't cut it.
And like Spain, the family unit remains strong which cushions the recessionary impact. Add to that a relatively wealthy country with respectable reserves to fall back on. Italy isn't the weakest link.
If the chain is slack with plummeting demand, it doesn't matter which is the weakest link.
Also northen european countries have a surplus ~500b twice than of China .... not 500B deficit like in some other country
great analysis; right down the path Ghordius has defended here. I for one have always felt that monetary union without fiscal cohesion is not sustainable with the level of debts and the two different socio-economic models.
The other issue is that Eurozone is subject to PAx Americana imperial strain and China rising pain. Can it take on this ominous battle all the while trying to escape from the clutches of Anglo financial model; without having cheap energy at its disposal...?
Austrian sauce for south and lender of last resort for north to ensure cohesion in pain; awesome strain as the south melts under unemployment!
Can this strategy still work if the south caves in and leaves the Euro?...Plan B....
- Austrian sauce for south and lender of last resort for north to ensure cohesion in pain;
Very BDSM. to Germs its natural, to Latins how long will they hold out?
thanks for the recognition - yes, it is an Austrian path insofar as it builds on "spending within your means", flanked by national sovereignty and the eurozone strenghts of SME production and trade who need infrastructure but not "stimulus"
"laissez faire", bitchez
politically, national resolve is too important for any crisis management (note: not fixing, managing) to have anything else than confederative setups - i.e. where France is a peer of Germany and Italy and so on and it's one-country, one-vote - as currently seen in both the EU and EZ to the chagrin of the super-state proponents like Barrelloso
further, europeans, way down the social classes, are more "sophisticated" when it comes to currency (fiat and/or gold) - we had a lot of experience in wrong monetary policy on a lot of small and medium cases
as I often tried to point out, politically the invisible elephant in the room is the presence of an interconnected eurozone-wide and cross-eurozone-trading SME entrepreneurship based on family-run businesses - something that does not need the Anglo-American financial model and frankly flies below their radars - with the exception of the editors of the Economist who attack it obliquely
one of the reasons of the EUR is there is this realization that debt and currency have to have the right size - and perversely a big mountain of debt has a certain strenght, if national - this goes back to the first "mountains of debt" of the Renaissance, part of the history of the Monte dei Paschi di Siena, up to the story of the national debts of Spain, France, Germany, etc.
great points Ghordius, nice food for thought.
in the FT there are two commentary articles that are quite iconic on this situation and the next threaths;
one from Wolfgang Münchau who already writes about the financial bonus issue as being "the first shot in a long battle" painting a conflict where he sees eurozone interests divorced from "London acting as it's main financial centre"
the other from Max Baucus - who is planning a great transatlantic trade deal between the US and the EU - note that British interest in it is immense and could mean that the UK could leave the EU with less qualms. it will be interesting to see how far transatlantic trade position have divorced, I see a lot of US/UK unicorns and wishful thinking there
Plan B? it depends, as Plan A. specifically, both depend from Uncle Sam and Uncle Wei
And of course both depend also from Russian oil and gas and it's propensity of flowing in direction of europe and/or china
note that the latin/south bloc is not caving in, for the moment - against all Anglo-American expectations
specifically, to go back to the "sophistication", they have had all historic experiences with the "Argentinian path" - they know it does not lead to riches, even down below to the common "socialist" voter
the common Greek appreciation for an elastic and stable currency is currently my best argument
any country exiting the EUR has a choice: to become a satellite of the USD or of the EUR. this is a fact, as long as China, the rest of the BRICs, Japan, the UK and of course the US are engaged in currency war
and so it's in the clear national interest to stay in and so have political leverage, as long this persists
Plan B is part of plan A. Buy up the trash sovereign paper. If no default, piss it out gradually into the pmarket of hold till redemption. Or, in the event of default. socialize the losses across the EZ via asset destruction of Drahi's bank holdoings or whatever acronym you care to name. Whatever the case, none of the financial families will be without a chair to sit in.
scusa, "Beppo, the nice lady playing hitler is on the phone for you".
UBS silly talk.
Look, China blows up, yes note that juicy equity crash last session. It will take out Germany, overnight. The ECB is a printing machine funded by the cronies at the NY Fed. A lot of banks, like UBS, hold fat yield junk from Europe. Wall Street is stuffed to the gills with leverage and high yield risk. Europe will blow apart and probably starting with Berlin fueling it, as it has a hundred of times throughout history.
All eyes on Asia and South America now.
Sorry you'll just have to remind me what Central Bank liquidity guarantees have to do with Austrian economics. Oh I remember - nothing. This article is a pile of tripe.
The place with the kangaroos?
exactly.... trying to paint badly Austrian economic, which has nothing to do with what they do in Europe or anywhere !!! "Austerity" .. ha ha .. give me a break.. no country in the world had any Austerity in the current crisis. This is just Kensyan bullshit talk to scare people...
Austerity will be enforced by the market on all the world kenguroo economics when the myopic QE works no more...
I just want to know when the Panzers roll again.
Better buy that Beretta 92FS made in Italy while I can.
Merkel and Draghi are no economic visionaries. The plan has always been to save the massive financial interests at the expense of the population. Merkel in particular has made sure her precious German financial institutions have been insulated from their corrupt and fraudulent actions.
Ireland has destined its youth and unborn to a lifetime of debt servitude because the ruling elite made sure those big European (German) banks were made whole after the depression began.
Spain did not have a sovereign debt crisis pre-economic collapse. It was only after the population was economically ravaged after massive bank bailouts that it became an issue. The Spanish populace, and the populace throughtout the Western democracies, bails out the big banks and in return the big banks demand austerity in order for the socialized private debt to be serviced and paid for.
Absolutely disgusting and tragic!
Your analysis is correct, and I wonder why ZH posts garbage like this.
However, you should understand that these oligarchs only push the middle class as far as the middle class lets itself be pushed. At some point you have to say, it's the people's fault, and only the people can stop it. The bourgeoisie is still unsure of its rights, 170 years after Marx. Why shouldn't forces take advantage of that uncertainty? How can a population which does not "deserve" to be "ravaged," go ahead and "let itself" be "ravaged."
You want to be sympathetic to the victims, but aren't the oligarchs simply preying on the fantasties of a bourgeoisie which is just as corrupt as any bank executive?
Why do you want bourgeois people to survive? Maybe it's nature's way of weeding out those incapable of battling corruption--both in themselves and in their surroundings.
+1
Thank you for saving me the time to reply to this TBTF idiot and his bankster apologetic analysis...
dup
Why don't we let Germany pick the countries it wants in its 'club'? Should be an interesting map. Different than last time.
ehmm... Italy and France ganged up on Germany to belong to their groups, helped by the BeNeLux countries. just to keep history straight
I try to remember that thishas never been about winning or losing. It has never been about preserving the Euro monetary union or letting it fail. It has always only been about one thing and one thing only...buying enough time for TPTB and the TBTF banks (their minions) to unload all the worthless debt (assets) onto the the population via the deposit of the worthless assets at par value with the ECB and any acronym you might care to name in exchange for fiat. When this whole thing goes tits up, the people hold the bag of crap and the the fiat has been converted into something of more lasting value.
Thats all this is or ever was. Nothing more. What we read, see and hear is all sound and fury signifying nothing.
does your theory still count as valid if the eurozone succeds in cleansing out TBTF influence? and still balance national interests?
yes unit labor costs are supposed decline so that you scumbag eurocrat/banksters' compensations can rise on their backs....fuck all of you scumbags...
Citizens of several countries in Europe -besides Germany, maybe- just feel the downside of austerity whilst corruption, bailouts, payments to Brussels, bonuses for banks and corporations are still daily news. Citizens really think that most politicians are out of touch and that they (the people) have to pay for errors of someone else. The biggest losers today aren't the winners from excessive spending in the years before the impact of the crisis. Or even worse: winners then are often winners now. Common people face unemployment, stagnant or dropping wages,increases in rent, increases in cost of living and so on. Or, to get things straight: the handling of austerity is seen to be completely unfair. And from what I can see and from what I know, I must say this is in most cases true.
Then why don't those "common people" rise up? How difficult can it be to bring the society to its knees? For that matter, why don't Americans overthrow the U.S. government? It wouldn't be difficult. This shows you that the middle class is simply rotten to the core: fascist, ignorant, corrupt, vulgar, stupid. Why do people on this site keep cheering for the American middle class? The American middle class is fascist garbage. Let them starve.
Don't they? Actually there could be more people on the streets out of Greece, Spain, Portugal. Maybe the Dutch will also organize demonstrations, Italy did it by voting the right way (unlike the Dutch, who didn't have a Grillo btw). By now a lot of people think they will lose something when they stand up. that will end when they realise that they are going to lose anyway.
I am confident that Europe actually is no peaceful place for Eurocrats any longer.
define "eurocrats" first. most of the times I see national ministers in council. do you mean them?
The "common people" are domesticated into not rising up.
That, and the fact that most of them are control freak wannabes.
Why would they oppose what they want to be?
OMG is it not time that bankers and politicians realise that we have gone past the point of no return.That goes for both types the greedy and the ignorant ones.
Why are we still looking at bullshit numbers to measure econmies. The health of an economy should not be measured in numbers but at peoples every day needs whether grand or basic. If people's basic services are not taken care off their won't be an economy to measure with bullshit numbers.
Whats the big deal with the euro currency anyway, it's only a fiat currency backed by trust. "In god we trust "
" I promise to pay the bearer " whats the euros one liner ?
Internal devaluation, man thats funny.
germans may know Austrian economics but if so that is the exact reason they cannot accept disolution. redemptions would crush all parties. delay and parlay rule the day.
UBS is full of bullshit. It is anything BUT Austrian. Austrian economics call for writing off bad debt. Where are the write-offs? So far Greece only and not enough.
note that going to far at the moment would create a backlash from certain financial centers
The reason why the wager will fail is because the solution is based on the false assumption that the internal devaluation will succeed. Most of the productivity gains are from idling a quarter of the workforce. The writer assumes that competiveness will continue to improve in the crisis countries, but the easy gains have been made already. The rate will flatten out. Do you believe that the PIIGS will ever catch up to Germany?
The rich countries will have to decide to subsidize the poor countries to save the euro. Since they can't even fund a banking union, fiscals transfers are a nonstarter.
http://dareconomics.wordpress.com/2013/03/04/fang-will-not-assume-piigs-...
I do not see one thing "Austrian" about this so- called solution.
The real Austrian solution would be to abolish the central banks, return to commodity money, repudiate the debts to the banksters, and shrink the state to no more than 10% its current size.
Europe, and the author of this piece, has no idea what Austrian economics is or what it teaches.
and it would be a splendid solution indeed - and a great collapse through external high-powered fiat intervention and speculation
meanwhile gold is being treated how? by whom? there is more involved in this than only europe, you know?
The solution will eventually come unwound since the internal devaluation devalues the human condition. Everyone starts feeling discontent with their circumstances, but cannot quite understand how thier plight has become so miserable. Revolutions and wars appear out of nowhere, but when historians with 20-20 hindsight reflect on the follies of the Central Bankers and Politicians years later, history demonstrates the same tragic outcomes come from the lack of hubris. As greed created all of the asset bubble in history, and the fear of great loss always leveled the broken models; the attempts to paint the tape of hope will be visited by reality in a horrific historic moment at some point.
I doubt the part about "Austrian" because this solution does not alter the Treaty of Rome's definition of the economy of Europe as "social market economy", or soft fascism. Needless to say this is contrary to "Austrian" and always will be.
Ill make this simple.
The Emz is toast -- it's running on borrowed time. Hopefully it's collapse will wipe out the eu too.
European nations must default on the enslaving odious debt currently being piled upon their citizens by the banker elite. This is what the latest Italian election was about.
If this was a supposed 'Austrian' solution, the solution would have been bankruptcy which would have included UBS; and this arsehole wouldn't have waisted our valauble time reading this POS.
I don't think the author is right to describe the Merkel-Draghi wager as "Austrian". That would have included serious reforms and reductions in the size, scope and cost of national governments inside the EZ, but that hasn't really happened. Europe is overwhelmingly stuffed full of socialists, and they do not like smaller government.
What has mostly happened in Greece, Spain etc are spending cutbacks on welfare and social programs, including health, to the point that pharmacies in both countries are running out of medications because the central govt isn't paying the bills. Meaning that people are dying to meet the demands of fascists in Berlin & Frankfurt, and of course Brussels.
No, the Merkel-Draghi solutions have only one aim in sight: to preserve the embryonic political EUSSR at whatever cost to the populations of EU member states. Period. And it fails to recognise that even if EZ member states' productivity is brought into balance by years of pain and poverty, what will hold it in place in the future? The only answer to that is full political and fiscal integration (the EUSSR). But growing numbers of citizens across Europe do not want that. Since their views are being completely ignored by the political elites, expect more civil unrest.
well, as you yourself note europe is indeed full of socialists, so "going Austrian" in the realm of state reduction is not politically feasible
but balancing budgets is - and it's "Austrian enough" - politics is the art of the possible in the realm of compromise
are people really dying to meet the demands of fascists in Berlin, Frankfurt and Brussels? it's not like Madrid or Athens don't spend at all
and if you say that they should "kickstart growth" then it's you leaving the "Austrian policy envelope" at escape velocity, imho
I'm not sure reading your last paragraph if you did read the article - for sure not my comments - it's not an option between superstate and full disintegration as some would like to portray it
Well, as others on ZH have noted, the actions taken have little resemblance to Austrian economics at all, whether we mix in 'the art of the possible' or not. I suppose if the author belongs on the Left, anything to the Right of his own views might be seen by him as Austrian. But that doesn't make it so. There is no indication of default by these heavily indebted nations although that is what the Austrian School would have recommended a long time ago, following standard rules of capitalism.
Yes, people are dying as a direct result of the policies being followed in several EZ countries. Watch Max Keiser's TV prog today and a French guest reveals that the number of suicides in France is rising fast (jumping under trains has increased 30 fold apparently). In Greece and Spain, rising deaths from suicide, occasional self immolation and deaths from lack of important medications are all rising. Although this increase is directly linked to current govt policies, it hasn't reached epidemic levels. Not yet. I expect the political elites might dismiss it as noise level.
Yes, I did read the article in full. Why do you question that?
And I'm not sure what comments of yours you refer to. Are you the author of the article?
On choices...I believe you are in favour of a federal EU, as opposed to the fully integrated USE that is being planned. Right?
Well, I see zero movement towards a federal EU and I for one would wish to look very very closely at any proposals put forward in that direction to see whether it was just a name change from USE to fool voters into believing that the crats are listening. The EU constitution/Lisbon Treaty comes to mind where a name change amounted to...exactly that.
But in truth, the EU elites have no intention of listening to the citizenry of Europe. They are hell bent on creating a USE, whether we like it or not. That is obvious and was indirectly confirmed by the communist Barroso some while back. It will all end in economic disaster, civil unrest, rope, piano wire and probably war.
IMHO, of course :-)
confederative europe, not federative, and for sure not USE - those are three very distinct paths, and we are threading the first
"zero movement towards a federal EU" is what I want
because going more federal would mean decrease the power of the national parliaments and increase the power of the EU parliament
Well, this becomes a very complex issue.
If Scotland were to vote for independence from the UK (it NEVER will, trust me), I would not object to some form of federal or confederate arrangement. But there are certain non-negotiables I'd hold up, EG: its own convertible currency, its own central bank and its own interest rates and all the other things that go with that.
Austrian insofar as it's about balancing the budgets
dying as a direct result of policies being followed in several EZ countries? If I understand you correctly you are apportioning blame for a retrenchment of socialist policies. aka less social spending. Am I correct? If yes, why are you complaining? I thought you hate socialism in all of it's forms
Correct, I do.
Taking Greece as an example, I believe it should have defaulted a long time ago and reverted to its own currency. Recovery would have begun the day after and many of the suicides would have been avoided, given that many of them are people who are not only suffering poverty but importantly, can see no hope for the future. This makes people become very desperate.
Ditto Spain, Portugal, Ireland and now Italy and France. UK to follow soooooooooooon.........
while I do slightly disagree on what they should have done - at the end, it's the Greek's business, isn't it? It's their country
meanwhile the Greek gov spends some on... French frigates. Instead of spending it in the socialistic manner of subsidizing more those medicine imports, that is
and yet: sovereign defaults and serious currency crisis situations also cause suffering, desperation and suicides
For sure it should be the Greek's own business. But let's not forget that when Papablahblah called a referendum on Greece taking on austerity or quitting the EZ (and by definition, defaulting), Merkel & Co had him removed from office and replaced with a technocrat. Other financial threats were issued too. As it happens, I believe Papa... was playing politics himself and had no intention of quitting the EZ even if the Greeks voted for it.
"had him removed" is fine for financial news, but imho inaccurate. parliament had him removed - on diplomatic and political pressure
in the same was as in Italy parliament threw out Berlusconi and accepted/voted the President's choice of an acceptable "technician" Monti
both countries have similar constitutions in this regard - a gov has to be acceptable for parliament and the President steers the choices
I hated it when he did this stunt - I seriously despise people who take up the referendum card irreverently and for short term gain
and we all later found out that it was a stupid move - with a supermajority of Greeks thinking it would be lunatic to even contemplate - especially then
the EU elites? who are those guys? power within the EU is squarely in the hands of national ministers and heads of national governments. Barrelloso, the commission and all the 30'000 employees are just a shared civil service
the commission is composed of recallable appointees of their national governments - one per country
the UK's member of the EU commission is Lady Catherine Ashton, who was appointed by UK's Brown cabinet and approved by the EU parliament, that can ditch her anytime
further, the commission is under the thumb of the council - who are nothing else than the national governments
EU elites are mostly the elected political slimeballs in each member state, who we know get into power on the back of lies and more lies. Elites is also often used to include the EU Commission slimeballs.
As you may have gathered, there's a lot of slimeballs in Europe!
LOL, yes. there are lots of slimeballs in humanity. I have some in my own family. hell, the biggest problem of democracy is that a majority is slimeballish. you have to work with what you have
as an explanation on how the EU really works (and so why I call this way confederative)
take this last EU law about banker bonuses. It was proposed in a council meeting - i.e. in a meeting where UK's PM Cameron was sitting together with all the other heads of government, including Merkel, Monti, etc.
then the commission - headed by Barroso and composed of one member from each nation (and commissioned by them) prepared out of the proposal a draft for an EU law - that had to be approved by either the council of PMs or the council of the FinMins - where all national financial minister meet (I know, de jure the commission seems to have the draft power, but de facto this is done in council)
only then it's allowed to be discussed as a draft in the EU parliament - who has no authority of proposing legislation directly - where it was approved
now this week UK's Chancellor is discussing with the other finmins if the UK can't have an extra-extra leeway thing about that - but it's currently 26 nations in favour and 1 against
so the real question is: does your national financial minister listen to the citizens of your country? does your national government listen to you? does the majority currently in power in your national parliament listen to you?
because that's where power lies, in europe. in the elected national parliaments who appoint and sustain recallable national governments. in the EU it's roughly one nation, one vote - and that makes it a confederation
Yes, I am aware of how the process works in Brussels. But I think it's disingenuous to suggest (even indirectly) that the Commission is completely downstream. Within the system you describe, the EU Commission has a lot of flexibility and power of its own. In that the CoM agrees on issues which need action (insofar as the UK in concerned, the govt does not consult the electorate) and the Commission drafts the laws/directives to give effect. It may or may not be what the CoM agreed to (in the same way that rules/regs produced by UK Civil Servants rarely give like-for-like effect to laws passed by parliament). A major problem is the CoM meeting minutes are never published; their meetings are shrouded in secrecy, yet they claim to represent their electorates. ho-ho.
with CoM you mean the commission, don't you? well, any claim to represent their electorate is rubbish. they represent their governments
and this is part and parcel of confederative setups - including the part where commissioners have to be approved by the elected eu parliament that can get rid of them if it wishes so
federative vs confederative - an explanation geared on the US example
before 1913, most activities involving taxing, spending and lawmaking were centered in the US States
State legislators appointed recallable US Senators
any US Federal law, budget or initiative was discussed in the state legislatures and the US Senators were instructed on how to vote - on pain of a recall if not following those instructions
and that was the reason why Washington was kept in balance vs the States
How can the Eurozone do anything "Austrian" when it is the Fed that sets the pace for global currency devaluation? Any plan b will always contain this invisible, flexible peg to the USD. The exporting nations of the zone will demand it. The savers are f*cked.