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The Four Traits Of Monetary Union Collapse

Tyler Durden's picture




 

There are four traits that UBS identified as common trends around the breakup of a monetary union. So has Cyprus (as is tirelessly pointed out, only 0.2% of the Euro area measured by GDP) set a course for the Euro’s destruction? Indeed, with Cyprus having checked the first three items on that list, while it has not left the Euro (yet), UBS concludes, "it may well be occupying a seat very close to the exit."

 

Via UBS: Is Cyprus Still In The Euro?

The four traits are:

  • Monetary union break up is preceded by capital flight from perceived weak from perceived strong parts of the union
  • Monetary union break up has tended to be regarded by governments as an opportunity for seizing cash or other assets held by citizens
  • Capital controls tend to be imposed early in the break up, and foreigners’ asset holdings are often discriminated against
  • Break up of a monetary union is normally associated with civil unrest and authoritarian government in at least some part of the former monetary union.

Eighty years of historical repetition

Let us get our worst case scenario out of the way. Cyprus has not left the Euro yet. It may well be occupying a seat very close to the exit, but in spite of having met the majority of the conditions of past monetary union collapses, it has not actually pushed through the door into the outside world. Instead, Cyprus – and perhaps the wider Euro area – can be thought of as occupying a position not too dissimilar to that of the United States in 1932/33, when the US monetary union effectively ceased to exist and then reformed.

The characteristics of monetary union failure are common to nearly all monetary union breakups, but they are not sufficient conditions of themselves. The US monetary union in 1932 experienced the first three conditions associated with a breakup, in that various states legislated bank holidays, limited deposit withdrawals, and restricted the transfer of funds out of state (the last point was generally accomplished by closing the banks). However, it should be noted that unlike Cyprus the movement of physical cash across state boundaries, assuming one had any to start with, was not prohibited in the US.

This process of bank holidays had followed on from an earlier episode of capital flight. Anticipating problems, financially savvy citizens of several states began to move their money into New York banks, as these were perceived as being stronger entities.

However, most economists would consider the US monetary union as functioning until January 1933. The union was certainly strained, and a dollar cash in New York had a different value from a dollar cash in Michigan (for example), but the central part of the monetary union was still functioning. What caused the monetary union to cease was the refusal, in January 1933, of the Federal Reserve Bank in Chicago to discount the bills of the Federal Reserve Bank in New York. One part of the central bank refusing to lend money to another part of the central bank signals pretty much the end of the monetary union.

The current situation in the Euro area has not reached that point, indeed is the antithesis of that. The European Central Bank has clearly been prepared to provide funds to the Cypriot central bank, and the Target 2 system of transfers between central banks is still operational. This is what enables us to say that the Euro remains intact as a monetary union. Should either of those situations change then Cyprus would cease to be a part of the Euro in any practical economic sense.

This does not mean that the Euro has nothing to learn from the events in the United States eighty years ago. The US monetary union breakup was unusual in that it also led to a successful reformation of the monetary union. The means by which this was achieved were twofold: first, establishing confidence in the banking system; second, by creating a fiscal union. The second of these options is not imminent in the Euro (and took several years in the Unites States). However, the first of these options is not only available it is actually under discussion with the concept of a banking union (which would entail a credible lender of last resort).

The idea is something that ECB President Draghi has alluded to repeatedly. In a monetary union there should be differentiation of borrowers by credit quality, of course, but there should not be differentiation by geography alone. The theoretical concept of the Euro sovereign ceiling being AAA regardless of the nationality of that borrower reflects that belief (in reality the theory has not survived the crisis). The reality of the disparate banking systems of the Euro area is that there is geographic discrimination, and the monetary conditions faced by a borrower in Spain are not the same as those faced by a borrower in the Netherlands, and neither faces the monetary conditions faced by anyone in Cyprus. Integrating the banking system of the Euro area, and providing a degree of common assurance across the Eurozone banks, or a subsection of “federal” Eurozone banks, must now be considered an essential next step on the path to Euro survival, in our view.

 

...

 

Events in Cyprus have caused those of us that think the Euro survives to at least question the odds of its survival. The cost of break up and the near certainty of contagion should hold the structure together. But Cyprus does serve as an opportunity to catalyse further necessary reforms with the right leadership. Let us hope the Euro can find its President Roosevelt, and not a President Hoover.

 

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Tue, 04/02/2013 - 18:20 | 3401161 Debugas
Debugas's picture

to put it short - the troika is trying to preserve bankrupt financial system of EU and will not stop at anything to save it

Tue, 04/02/2013 - 18:34 | 3401200 Buckaroo Banzai
Buckaroo Banzai's picture

“We shall have World Government, whether or not we like it. The only question is whether World Government will be achieved by conquest or consent.” -- James Paul Warburg, February 17, 1950, before the US Senate.

Tue, 04/02/2013 - 18:41 | 3401208 JLee2027
JLee2027's picture

"""James Paul Warburg (August 18, 1896 – June 3, 1969) was a German-born American banker"""

Well that explained it. Heil Hitler...er...Bank! 

Tue, 04/02/2013 - 18:49 | 3401222 Tijuana Donkey Show
Tijuana Donkey Show's picture

HeilBank, it's everywhere you don't want it to be. Free mushache with any account cut.

Tue, 04/02/2013 - 20:47 | 3401513 notbot
notbot's picture

Speaking of currency collapses, has it occured to anyone else that one reason (among many) that Gold/Silver are so weak lately is b/c Bitcoin is gaining traction and could make them obsolete as currencies?

If I understand Bitcoin correctly (thank you Tyler), it is impossible to counterfeit. It is more portable than gold, much easier to store, has a finite limit to amount that will ever be in circulation, and has no counterparty risk (gold does if you store it outside your home).

I'd love for this to be the real deal. I'm skeptical, but perhaps after a "great reset" bitcoins will be more practical than gold.

Thoughts?

Tue, 04/02/2013 - 21:10 | 3401570 tickertapeguide
tickertapeguide's picture

 

combibars, the bit coin for the apocalypse.  one mean solar flare could knock out your holdings in bit coin.... just sayn.

Tue, 04/02/2013 - 21:22 | 3401608 Non Passaran
Non Passaran's picture

It'm sick and tired of these "arguments".
What's more likely, destructive solar radiation that can damage bitcoin or nuclear radiation that can irradiate one's PM's?
I'd say the former seems less likely.
And in any case no one has said people should convert PM's into Bitcoin.

Tue, 04/02/2013 - 21:17 | 3401593 Non Passaran
Non Passaran's picture

They're good for what they're good for.
That has nothing to do with PM's.
It's a small market.
It's incredible how 1BTC is about as scarce as 4 oz of silver. WTF...
I'd say silver is cheap.

Tue, 04/02/2013 - 21:20 | 3401596 JLee2027
JLee2027's picture

Bitcoin is for fools.

Wed, 04/03/2013 - 10:18 | 3403047 JimBowie1958
JimBowie1958's picture

Yeah, and if God had meant us to fly he would have given us wings?

And according to many back in the early 19th century mankind was not meant to travel at the break-neck speed of over 30 miles per hour!

And of course, transmitting moving pictures over a wire was clearly impossible, and this applied to voice transmissions as well.

I can understand that you dont trust new technology. I am a bit of a stick in the mud mysefl.

But to assume the arrogance of telling people they are fools because they do not agree with me is something i can no longer fathom, if I ever really could.

Tue, 04/02/2013 - 22:07 | 3401708 NoDebt
NoDebt's picture

Thoughts?  Yes.

Advice?  Not so much.

First let me ask, have you actually tried it?  Because I have.  Just last month, actually.  Posted about it here, openly.  Said what I was going to do and did it.  Yes, I rode the wave from $48 to $115.  Super duper.

If you think that it's shortcomings (which are many) are about false scarcity or about the strength of the encryption (which is extremely strong) or about the danger of solar flares taking down the whole internet (which I won't dignify with a comment) or any of that happy horseshit, you're missing the REAL risk. 

BitCoin does not work without EXCHANGES.  It does not do you any good unless you can EXCHANGE IT.  Right now, MtGox.com handles ~80% of all BitCoin exchanges.  They are located in Japan.  If you shut them down, you put a serious hurt on BitCoin.  Sure, it can migrate somewhere else (many places else) but like Napster got shut down, so you could shut down all the major BitCoin exchanges.  The only ones left would have to be in places like Afghanistan or something- and are you willing to exchange your BitCoins in and out of other currencies relying on an Afghan-located exhange to give you a fair shake in that transaction (or ever give you your money back if you ask for it)?

BitCoin only exists and works because there is western-style rule-of-law ALLOWING it to exist.  That can be revoked.  If BitCoin gets big enough and threatens a major currency it must assuredly WILL be revoked.  And that's the ball game.

Have fun with it while it lasts.

Tue, 04/02/2013 - 22:43 | 3401795 dark pools of soros
dark pools of soros's picture

not really..  anyone with an Avalon right now can be their own local exchange for cash in hand, and bitcoins sent to your wallet

they can do it on craigslist

Wed, 04/03/2013 - 09:41 | 3402868 notbot
notbot's picture

Thanks, NoDebt...that's what I was looking for.  Ultimately, I think BitCoin gets shut down b/c it's too big a risk for govts.  Wish it were otherwise, love the concept.  It's prob a donut waiting to happen.  That's why I said it would only happen after a great reset.  Until then, govt can put the smack down on it if it grows too much.

Wed, 04/03/2013 - 10:20 | 3403059 JimBowie1958
JimBowie1958's picture

Shutting down Bitcoin would require the government to unilaterally seize every Bitcoin node that exists across the globe simultaneously.

If they dont, node admins can very quickly back up their systems to files that can be moved and the network restarted underground.

It isnt going to happen. By the time enough people in the government would have the ability to shut Bitcoin down, too many of them will have wealth stored in Bitcoin for it to actually workout.

Wed, 04/03/2013 - 13:28 | 3404137 notbot
notbot's picture

Oh, I agree with that. But what govts can do is pass a law that makes it illegal for any U.S.-based business to accept bitcoins since they are used ostensibly as a mechanism for tax evasion (both sales tax and income tax).

 

You'd only need a few major developed mkt countries to do the same thing and bitcoins would lose value very quickly just b/c you can't actually use them for anything that you really want to buy.  

 

The network would still be up, bitcoins would still be scarce, but just not liquid back into USD or very useful for everyday trade.

Wed, 04/03/2013 - 14:09 | 3404347 JimBowie1958
JimBowie1958's picture

True if the law reduces legal demand for any item it will lose some of its value.

But the thing is, as long as criminals find use for e-currencies they will persist in having value.

 

Wed, 04/03/2013 - 18:17 | 3405794 notbot
notbot's picture

You make a good point, I agree with that.

Wed, 04/03/2013 - 00:55 | 3402096 stacking12321
stacking12321's picture

as far as bitcoin being the "real deal", life is a journey, not a destination.

bitcoin had some very good advantages, as well as some shortcomings.

but, i expect it is an important step in the evolution of currency, and will either evolve, or be replaced by one of its offspring.

important advantages:

  • not centralized / not under any govt's control
  • not trackable so long as you take proper precautions
  • open source / the code is right there for everyone to see

disadvantages needing to be addressed:

  • not backed by anything tangible such as gold (arguably, bitcoins are mathematical solutions to problems, generated by mining, so a bitcoin represents an investment in the electricity used while mining)
  • open source means it can be copied, you can create the bitcoin 2.0 network without too much work, with 21 million more bitcoins added to circulation

 

Wed, 04/03/2013 - 10:26 | 3403081 JimBowie1958
JimBowie1958's picture

You dont seem to appreciate the computational power right now that backs up the Bitcoin system. Maybe the NSA could do it, but I doubt that too.

People have tried to fork Bitcoin and they have been stopped every time.

Hell, no one has forked Litecoin and it has one thousandth the computational power behind Bitcoin.

What is 'behind' Bitcoin and Litecoin is pure computaional power, the top security of any currency and the ability of people to 'mine' it for themselves.

Bitcoin is a prefered commodity used by many crimninal groups today, so it has plenty of demand to last it.

Tue, 04/02/2013 - 19:57 | 3401395 gratefultraveller
gratefultraveller's picture

Why look at the two sides of the coin separately, if you can look at the big picture?

From "Das schwarze Reich" (The Black Empire), E.R. Carmin:

1917... "The head of the German Secret Service was a brother of the american banker and Vice President of the Federal Reserve Board, Paul Warburg. Max Warburg, living in Berlin and cooperating in the financial affairs of the Kaiserreich made available for Lenin... 6 million Dollars in gold"

Without that gold the Bolshevik revolution would never have succeeded, and Russia would not have turned communist.

Tue, 04/02/2013 - 20:15 | 3401443 gratefultraveller
gratefultraveller's picture

Antony Sutton on the BIS - the central bank of central banks - and it's role in WWII:

The fact that the Bank possessed a trul y international staff did, of course, present a highly anomalous situation in time of war. An American President was transacting the daily business of the Bank through a French General Manager, who had a German A ssistant General Manager, while the Secretary- General was an Italian subject. Other nationals occupied other posts. These men were, of course, in daily personal co ntact with each other. Except for Mr. McKittrick [see infra] theft were of course situated permanently in Switzerland during this period and were not supposed to be subject to orders of their government at any time. Ho wever, the directors of the Bank remained, of course, in their respective countries and had no direct contact with the personnel of the Bank. It is alleged, howev er, that H. Schacht , president of the Reichsbank, kept a personal representati ve in Basle during most of this time.

From: http://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_Hitler.pdf

Tue, 04/02/2013 - 23:28 | 3401938 Ropingdown
Ropingdown's picture

I'm no Francis:  During the 1stWW all the large int'l Jewish organizations were pro-Germany. Surprise.  Enabling Lenin to go back and cause chaos was, from their point of view, natural.  They didn't comprehend the nature of the Leninist beast.

Tue, 04/02/2013 - 21:05 | 3401549 Kirk2NCC1701
Kirk2NCC1701's picture

What, no comment from Francis, regarding Warburg's "tribe" connection?  ;-)

The bankrupt Western CB's and their crypto-aristocratic bosses would love to run the world via their fiat confetti money and financial 'paperware', but the fact is that BRIC + the rest of the world won't stand for it.  These CB's are totally desperate to keep their global Ponzi going -- but will fail on the rocks of physical reality.

Tue, 04/02/2013 - 18:48 | 3401221 bank guy in Brussels
bank guy in Brussels's picture

Also,

« Countless people will hate the new world order ... and will die protesting against it. »

- H. G. Wells, 'The New World Order' (1939)

Tue, 04/02/2013 - 18:25 | 3401174 The Alarmist
The Alarmist's picture

Let's see ... 100's all serial marked with X, 50's all X's, 20's all X's ... guess I don't care if Cyprus is still in the Euro. Or do I?

Tue, 04/02/2013 - 21:14 | 3401582 Non Passaran
Non Passaran's picture

Chump change vs what's already been sunk

Tue, 04/02/2013 - 18:30 | 3401190 Whalley World
Whalley World's picture

They say that breakin up is hard to do - Neil Sedaka

Tue, 04/02/2013 - 18:43 | 3401209 krispkritter
krispkritter's picture

 '...there must be 50 ways to leave your Banker...' Ron Paul Simon 

Tue, 04/02/2013 - 18:55 | 3401240 bank guy in Brussels
bank guy in Brussels's picture

Leavin' the euro ... all it takes is courage and common sense

Article above is praying

« Let us hope the Euro can find its President Roosevelt ... »

That's wrong, totally wrong

What the euro needs, in the Mediterranean countries, is Moses or Simón Bolívar or Thomas Paine

"Let my people GO!"

Wed, 04/03/2013 - 05:29 | 3402341 debtor of last ...
debtor of last resort's picture

Let us hope the eurozone will find it's 'president' hanging. Instead of an unelected techno pres as the leader of the debt heard.

Tue, 04/02/2013 - 18:31 | 3401192 Charles Wilson
Charles Wilson's picture

"Let us hope the Euro can find its President Roosevelt, and not a President Hoover."

If that's what we are left with, we are doomed.  Roosevelt was a Thief's Thief, a Statist that instituted what Wilson could not get accomplished.

I hope that you sincerely do not believe what you wrote.  Perhaps a rhetorical flourish to end an essay.  FDR marked the end of the American Experiment and the DISASTER that we now face finds its roots with FDR.

Catastrophe!

 

CW

Tue, 04/02/2013 - 18:36 | 3401201 The Alarmist
The Alarmist's picture

I'd say they are somewhere around Millard Fillmore in their development ....

Tue, 04/02/2013 - 18:46 | 3401218 Bay of Pigs
Bay of Pigs's picture

FDR was a Bankster. He was certainly no lover of Freedom and Liberty or the US Constitution. 

Tue, 04/02/2013 - 20:28 | 3401473 jon dough
jon dough's picture

+1

Here's Garrett telling how it went down in "The Revolution Was"

http://www.lewrockwell.com/orig5/garrett1.html

Tue, 04/02/2013 - 21:07 | 3401558 Kirk2NCC1701
Kirk2NCC1701's picture

FDR was a patrician aristocrat with a liberal bent that was purposefully 'contrarian' to his aristocratic peers.

Tue, 04/02/2013 - 18:34 | 3401199 Sudden Debt
Sudden Debt's picture

so sad... we where so happy... one big happy family....

europe...

if only... THOSE GERMANS, FRENCH, DUTCH, ITALIANS, SPANIARDS, PORTUGESE, CYPRIOTS, IRISH, ENGLISH DIDN'T JOIN!!!
I TELL YA!!! THEY SHOULD HAVE NEVER JOINED!!!

Tue, 04/02/2013 - 18:42 | 3401211 The Alarmist
The Alarmist's picture

Joachim: They're still running with shields down. 
Khan: Of course! We are one big, happy fleet! 

Tue, 04/02/2013 - 19:10 | 3401283 Beam Me Up Scotty
Beam Me Up Scotty's picture

It was the best of times, it was the worst of times. Message Spock?

Tue, 04/02/2013 - 19:27 | 3401327 NoDebt
NoDebt's picture

None that I am aware of, Captain.  Other than, of course, "happy birthday."

Tue, 04/02/2013 - 20:00 | 3401402 Beam Me Up Scotty
Beam Me Up Scotty's picture

"Sauce for the Goose, Mr. Saavick.  The odds will be even..."

Tue, 04/02/2013 - 20:26 | 3401462 NoDebt
NoDebt's picture

"Two minutes to nebular penetration.  Reliant..... is closing."

I could do this shit half of forever.  God, I'm such a geek.  Ooo, how about this one:

"ICAAAAAAAAAAAHN!".  Nope, not Kirk.  Bill Ackman.

Tue, 04/02/2013 - 21:10 | 3401562 Bicycle Repairman
Bicycle Repairman's picture

"Just give me the Xenite, you ugly, evil smelling two-headed Reamulan freak."

Tue, 04/02/2013 - 21:10 | 3401561 Kirk2NCC1701
Kirk2NCC1701's picture

The worst is yet to come.  One to beam up.

Tue, 04/02/2013 - 18:36 | 3401204 disabledvet
disabledvet's picture

there already is a "euro state." this was not true in the USA in the 1930's. ironically one could argue "it's not true today either." monetizing the debt funds neither the Agency nor the "money" (via an economic recovery.) the USA appears to me to be "just happening to have an economic recovery"...and that's about it. in Europe i think to argue there isn't a "financing problem" of the first order is as patently ridiculous as it is false. this is not some "esoteric concern" either. what is presented here "presupposes a solution." i would argue it presupposes a DEVALUATION and THEN a "solution." of course..."the Swiss are pounding the table about how undervalued their Franc is" so why would i think that...

Tue, 04/02/2013 - 18:53 | 3401238 chump666
chump666's picture

LOL how you going to trade this UBS?

Tue, 04/02/2013 - 18:57 | 3401245 ebworthen
ebworthen's picture

Don't forget about FDR trying to steal citizen's Gold:

"The order criminalized the possession of monetary gold by any individual, partnership, association or corporation."

This time around, they will criminalize the possession of Gold by individuals, and let the Corporations keep it (Corporations are individuals as far as the Supine Court is concerned - but an exemption here will be made no doubt).

http://en.wikipedia.org/wiki/Executive_Order_6102

Tue, 04/02/2013 - 19:03 | 3401265 graspAU
graspAU's picture

He also stole silver in 1934 (he stole a lot of good assets with his programs). Not by the same method as gold, he called it in to be coined and charged hefty fees for coining, confiscating a nice part of your metal. He wrote in his personal letters that he thought gold should be owned by the government and the people should be left with silver. He also thought he was going through a bigger battle than the one Andrew Jackson had with the 2nd Bank of the United States:

“The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson…The country is going through a repetition of Jackson's fight with the Bank of the United States--only on a far bigger and broader basis. “
-Letter to Col. Edward Mandell House (21 November 1933); as quoted in F.D.R.: His Personal Letters, 1928-1945, edited by Elliott Roosevelt (New York: Duell, Sloan and Pearce, 1950), pg. 373.

 

 

Tue, 04/02/2013 - 19:11 | 3401286 DavidC
DavidC's picture

Here in the UK (so not as 'at-risk', YET) my parents have already removed cash from their account to have 'readies'. My Mother was talking to a friend of hers today and mentioned it, her friend has already been considering the same actions.

If that's in the UK, I'll be mightily surprised if it isn't already happening in the Eurozone.

I won't go into details, but I'm impressed by the astuteness and awareness of my parents, both of whom left school at a young age because they had to. That MUST be where I got my brains from!

DavidC

Tue, 04/02/2013 - 19:24 | 3401324 soopy
soopy's picture

Apocalypse bitchez

Tue, 04/02/2013 - 19:27 | 3401331 Ban KKiller
Ban KKiller's picture

Called my bank today to tell them to up my limit of daily withdrawals. 

Called my ladies and told them to expect more deposits. 

Tue, 04/02/2013 - 20:39 | 3401494 howenlink
howenlink's picture

Called the skipper and told him to ready my boat!

Tue, 04/02/2013 - 23:19 | 3401908 Ropingdown
Ropingdown's picture

Called the Professor, and told him Marianne is mine.

Tue, 04/02/2013 - 19:36 | 3401352 NoDebt
NoDebt's picture

"Break up of a monetary union is normally associated with civil unrest"

Still waiting.  50+% youth unemployment across southern Europe, depositor haircuts and now capital controls.  No mass uprisings.

You know what this is doing?  They're emboldening the banks and politicians to do the same thing everywhere else.  No consequences for bankers and politicians who lie outright..... now no consequences for bankers and politicians who outright steal money from their people.  Great example to set.  We're fucking doomed and I'm starting to think we deserve it.

Tue, 04/02/2013 - 19:58 | 3401392 gratefultraveller
gratefultraveller's picture

.

Tue, 04/02/2013 - 20:04 | 3401408 smacker
smacker's picture

 

UBS avoid exploring one of the greatest issues causing the Eurozone's failure. Namely, the issue of differential productivity levels between member states.

Of course this problem also existed in the United States (and still does) and was dealt with by "fiscal union", a polite term meaning $billions of annual transfer payments to the poorer states to keep them afloat. I have always been amazed that American people in the small number of 'economic engine' states have tolerated this for so long.

But in the Eurozone, fiscal union of that model will be immensely difficult to achieve because the richer members have already sussed out that it's a licence for the poorer states to live off their wealth & taxes. The alternative is for the poorer member states to get their act together and play catch-up over a short period. Sadly, political incompetence, systemic political corruption and generally backward societies prevent that.

There is no solution, except for the political elites to keep lying.

Tue, 04/02/2013 - 23:17 | 3401902 Ropingdown
Ropingdown's picture

Agree.  Using the phrase "geographic discrimination" in the article, rather than "nation-based discrimination" is disingenuous.  The problem is productivity variation, but that is embedded in the cultural and linguistic variations and national political norms.  It isn't going away.

Wed, 04/03/2013 - 06:25 | 3402385 Surprese
Surprese's picture

Agree with the cause, disagree with the proposed solution (break-up).

The US "small number of 'economic engine' states" weren't always the economic engines. Not so long ago the economic engines were California, Michigan. No so long ago the poorer states were Havaii, New York (defaulted in 1975 - remember 'Hill Street Blues'?).

If you go back to the Great Depression, the picture is even more contrasting with today's winners and loosers.

In Europe, do you remember 'The sick man of Europe' (Germany a decade ago, the first country to breach the Euro deficit rules)? Do you remember the 'E puor, si muove' (Italy, the industrial powerhouse of the 90s with a per capita GDP higher than the UK - just google it)?

Things change, and Europe will change. For better of for worse, that's for us to decide.

Meanwhile, the Austr-erianism being implemented in Europe (Austerity under Austrian model, with sounder public finances and no bailouts for banksters) is an investment in the future.

There is no QE in the Eurozone. Banks default, and depositors loose money. That says it all.

Wed, 04/03/2013 - 07:40 | 3402483 smacker
smacker's picture

 

Well actually, I didn't propose a break-up to solve the problem, although I believe it is the right thing to do.

Whether member states who are economic engines changes over time is not too important because it doesn't affect that productivity levels vary between them. And the social culture between (say) Germany and Greece is enormous and it's unlikely that Greeks would wish to emulate Germany even if it had the ingredients to do so.

These differences are huge and can only be bridged by a complete fiscal union (including banking, govt budgets, spending, eurobonds and everything else), which includes huge annual transfer payments (see Target2) in the absence of equality in productivity.

On top of that, it's highly questionable whether the ancient cultures of some poorer nations should be changed to match the richer northern states. True cultural diversity is a benefit, not a liability. Only socialists and its sister mindsets want to see one-world conformity where everybody is the same same.

On bank defaults, Cyprus is the only insolvency that has been dealt with by depositors having funds taken away. All previous bailouts were taxpayer funded. Again, that's something northern states are becoming very resentful about.

Wed, 04/03/2013 - 07:52 | 3402505 Ghordius
Ghordius's picture

1907 the US had no federal taxation to speak of, no federal banking system and so on - and it did not suffer from this lack

you say break-up is the right thing - though you aren't sure if it solves the problem? why should we, then?

meanwhile you are asking us eurozoners (I understand you are not one) to have federal taxation, federal EuroBonds and one humungous banking system? in order to achieve what? a copy of the post-1913 USA? how does this solve anything?

equality in production? how did that work when all currencies were redeemable in gold? look up Pareto, because it did

nope, I agree with Surprese - and want to add one little litany of mine: it's Wall Street and the City that ask for EuroBonds - which lead to EuroTaxes, not us

Wed, 04/03/2013 - 08:03 | 3402533 Ghordius
Ghordius's picture

btw, wouldn't eurotaxes and eurobonds be the hallmark of the european superstate? would that not lead to an euroarmy, an eurofleet and a centralized government? the very moloch that you show on your avatar?

you paint a picture of poor southerners and resentful northeners - are you really sure that this is all the fault of... currency?

we had a huge expansion of credit looking for debtors - are you sure this would not have happened with the old currencies?

have a look at Dear Old Blighty - how much better is it for the average Briton? have a look at Northern England vs Southern England

Wed, 04/03/2013 - 06:28 | 3402386 Surprese
Surprese's picture

Agree with the cause, disagree with the proposed solution (break-up).

The US "small number of 'economic engine' states" weren't always the economic engines. Not so long ago the economic engines were California, Michigan. Not so long ago the poorer states were Havaii, New York (defaulted in 1975 - remember 'Hill Street Blues'?).

If you go back to the Great Depression, the picture is even more contrasting with today's winners and loosers.

In Europe, do you remember 'The sick man of Europe' (Germany a decade ago, the first country to breach the Euro deficit rules)? Do you remember the 'E pur, si muove' (Italy, the industrial powerhouse of the 90s with a per capita GDP higher than the UK )? Just google it, if you have doubts.

Things change, and Europe will change. For better or for worse, that's for us to decide.

Meanwhile, the Austr-erianism being implemented in Europe (Austerity under Austrian model, with sounder public finances and no bailouts for banksters) is an investment in the future.

There is no QE in the Eurozone. Banks default, and depositors loose money. That says it all.

Tue, 04/02/2013 - 20:03 | 3401411 shovelhead
shovelhead's picture

Angela's love song to Cyprus...

http://www.youtube.com/watch?v=JMqa-pB-_Pc

 

 

 

Tue, 04/02/2013 - 20:06 | 3401421 q99x2
q99x2's picture

5th trait: Bitcoin hits new highs daily High:$118.00000

Tue, 04/02/2013 - 21:09 | 3401563 Unpopular Truth
Unpopular Truth's picture

119 :)

Tue, 04/02/2013 - 21:12 | 3401579 Kirk2NCC1701
Kirk2NCC1701's picture

The flight of capital from the US = WIP.  I have witnessed this first-hand in recent days and weeks.  The smart money is hedging its bets.

Wed, 04/03/2013 - 09:32 | 3402829 Mark Urbo
Mark Urbo's picture

Capital is in flight - period.

Tue, 04/02/2013 - 21:28 | 3401624 Bugsquasher
Bugsquasher's picture

So in other words the solution tp problems created by to much central planning and control is more central planning and control.  The Bernake school of logic. The solution to the problem of too much debt is more debt.  Never mind it all makes sense now!

Wed, 04/03/2013 - 00:53 | 3402095 spekulatn
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