Europe's Unanswered Questions

Tyler Durden's picture


The EU summit to save the Euro (the nineteenth, or thereabouts) has, quite remarkably, agreed to do something to try and save the Euro. The whole build-up and conclusion to this summit have brought a sense of nostalgia to some observers; the disillusionment in advance, the insistence by national leaders that absolutely nothing would be sacrificed, the dervish-like spinning of “informed sources” and unnamed officials, the late-night brinkmanship, and then the highly personal process of striking a deal amongst heads of government.

Paul Donavan, UBS: [excepted from] One money, one banking system, one fiscal policy?

Going into this summit we had a monetary union in Europe that clearly did not work. Coming out of this summit we have a monetary union that still does not work.


As ever with a Euro summit there are unanswered questions. Grandiose statements are what heads of government specialise in – the details are left to later (it is one of the reasons why Maastricht produced a monetary union that was flawed from the outset. Once “create a single currency” had been agreed, politicians lost interest). The statement from the summit itself was woefully inadequate, and most of the details have been fleshed out with press conference statements. Doubtless more details will be forthcoming as heads of government return to their own countries and brief their local media on how they “won” in Brussels. So what additional questions need to be answered?

  • Will the bank supervisor have real powers? In particular will the bank regulator be able to close down banks, even if those banks are national champions? They should have this power, otherwise the threats that they can make are going to be largely impotent. Ultimately, we would need to see the regulator able to force changes to banks even if they have not asked for capital injections (as happens in every other functioning monetary union). Are Euro area nations prepared to surrender their sovereignty to the extent that “foreigners close our banks / foreclose our mortgages”?
  • Chancellor Merkel of Germany has declared that there must be conditions for direct bank recapitalisation. This does not, perhaps, occasion much surprise in financial markets as Chancellor Merkel of Germany is very keen on conditions. But how are these to be imposed? There needs to be a set of “standing conditions”, rather than case-by-case conditions, if the mechanism is to work properly – per the need for an apolitical capital injection process, outlined above.
  • What about those countries that have already bailed out banks with Euro area assistance? Assuming that direct recapitalisation does not take place before the end of this year, that list is Greece, Ireland, Portugal, Spain and Cyprus (countries that have or will have used EFSF money to bail out their banking systems). Other countries have bailed out their banks with national funds. Where does the process stop? This is absolutely critical to resolve, and of course has a huge potential impact on sovereign bond markets (because it impacts individual sovereign debt to GDP considerations).
  • Who guarantees deposits? This has not been clarified. If deposits are guaranteed nationally, but the banking regulator is supranational, why should a domestic sovereign have to bear the cost (deposit insurance) of a decision (close a bank) that is taken at a supranational level. However there is obviously a cost burden to guaranteeing banks’ deposits at a pan Euro level – and the question “why is our tax money being used to guarantee lax foreign banks’ depositors?” is bound to arise.

For liquidity injections the announcements are full of good intentions, but they do not in fact change anything regarding the solvency of banks today. What is changing is who foots the bill for the solvency of banks (eventually) and thus the link between the banks and the sovereign. Although there has been some positive reaction in bank CDS so far, it is not clear whether this will suddenly make money markets more functional.

A healthy dose of economists’ cynicism is probably best taken at this point. Money market normalisation is likely to take more than a high-flying statement from the Euro area to resolve. As such, the economic effectiveness of liquidity injections is likely to remain low (to nil).

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Fri, 06/29/2012 - 14:57 | 2574154 Uber Vandal
Uber Vandal's picture

Wouldn't Homer Simpson be a better illustration for this than Fry?


Fri, 06/29/2012 - 15:04 | 2574183 MillionDollarBonus_
MillionDollarBonus_'s picture

I am delighted to see President Herman Van Rompuy participating more in the process of reforming Europe. For much of the year, he has been sidelined and ignored by both national leaders and the press. President Rompuy's stoicism and courage is finally getting the recognition it deserves.

Fri, 06/29/2012 - 15:06 | 2574199 battle axe
battle axe's picture

MDB, I thought you had died?

Fri, 06/29/2012 - 15:20 | 2574257 financial apoca...
financial apocalyptic contagion's picture

that was so weak MDb go fuk urself

come up with something better to deserve our red votes

Fri, 06/29/2012 - 16:17 | 2574490 Pure Evil
Pure Evil's picture

Well, when you have multiple personalities, or in this case, multiple avatars, and you spent all of last night defending the Roberts/SCOTUS decsion via your multiple personalities, you have a tendency to burn out.

Fri, 06/29/2012 - 15:17 | 2574238 falak pema
falak pema's picture

van bompuy is the sad face of past european hubris, the oligarchy mantelpiece souvenir. Forget him he is a showpiece for a model that will not be the way to the future, but a residue of the past. You can collect Chateau Lafitte bottles, for celebrating the Rottenschilds past, or you can buy wines of the future. 

Fri, 06/29/2012 - 15:22 | 2574263 debtor of last ...
debtor of last resort's picture

You're still a chooser. In due time you will become a beggar. A million dollar beggar.


Your posts are great though... :-)

Fri, 06/29/2012 - 15:22 | 2574264 Itch
Itch's picture

Granted, it takes stoicism to get up in the morning and look at that hairline in the mirror.

Fri, 06/29/2012 - 15:23 | 2574272 debtor of last ...
debtor of last resort's picture

Oh, and on topic


VP is just another grey pigeon that will be shot when it shits too much on my front window.

Fri, 06/29/2012 - 17:21 | 2574273 TomGa
TomGa's picture

Is is just me, or does Van Rompuy distinctly resemble a grey ground squirrel?  Just add some long front teeth and fuzzy ears and the resemblence to one of those little critters is striking.  One could easily envision him holding up an acorn in two scrawny hands to gnaw upon.

But even better is the Nigel Farage interview on RT:

"Nigel Farage on the Failings of the EU Summit and an Antidemocratic Europe" with a special introduction asking  "Who is Herman Van Rompuy?": (Hint: One of the "worst people seen in Europe since 1945.")

Fri, 06/29/2012 - 17:28 | 2574744 TahoeBilly2012
TahoeBilly2012's picture

20 who don't get MDB wry sense of dread, 6 who do...

Sat, 06/30/2012 - 08:15 | 2576163 Nussi34
Nussi34's picture


Sun, 07/01/2012 - 00:47 | 2578075 MeelionDollerBogus
MeelionDollerBogus's picture

EMPEROR not President. The EU is a tyrannical EMPIRE not a nation. It has an EMPEROR not a President.

Fri, 06/29/2012 - 15:06 | 2574194 battle axe
battle axe's picture

These meetings are like discussing what color carpet you should get in your house as you are walking to the Gas Chamber.......

Fri, 06/29/2012 - 15:25 | 2574279 Goldilocks
Goldilocks's picture

"Wouldn't Homer Simpson be a better illustration for this than Fry?"

Courtesy of Money 4 Nothing,


The Simpsons - I Am So Smart (0:36)

Fri, 06/29/2012 - 15:00 | 2574162 LawsofPhysics
LawsofPhysics's picture

There is already a one world currency, it's called gold.  

Fri, 06/29/2012 - 15:05 | 2574189 Martin W
Martin W's picture

Correct, and this gold union works well from BC times

Fri, 06/29/2012 - 15:00 | 2574166 Cognitive Dissonance
Cognitive Dissonance's picture

"Going into this summit we had a monetary union in Europe that clearly did not work. Coming out of this summit we have a monetary union that still does not work."


Not with your out loud voice. You might scare the Muppets.

Fri, 06/29/2012 - 15:01 | 2574167 centerline
centerline's picture

Europe's leaders meet to draw up plans for a perpetual motion machine.  Hmmm, I wonder what the outcome will be in the end?

Fri, 06/29/2012 - 15:00 | 2574168 ziggy59
ziggy59's picture

What doesn't kill you; makes you stronger...

Fri, 06/29/2012 - 15:01 | 2574169 williambanzai7
williambanzai7's picture


Fri, 06/29/2012 - 15:06 | 2574195 otto skorzeny
otto skorzeny's picture

oddly- he looks better with the squid headdress. I've seen nicer teeth on "River Monsters"

Fri, 06/29/2012 - 15:14 | 2574220 gmrpeabody
gmrpeabody's picture

They all look Ferengi to me.

Fri, 06/29/2012 - 15:37 | 2574329 ebworthen
ebworthen's picture

Eating retirees and pensioners tends to do that to their teeth.

Fri, 06/29/2012 - 15:26 | 2574274 LeisureSmith
LeisureSmith's picture

Awesome work banzai. The Squidfaced Assassin, kinda looks like that shifty dude with the crazy ears from Startrek....Quark.

Edit: damn, to slow.

Fri, 06/29/2012 - 15:01 | 2574172 MrBoompi
MrBoompi's picture

So the effectiveness of monetary injections is "low to nil"?  Wow!  That's better than COLLAPSE OF THE STATUS QUO any day!  Inject away!

Fri, 06/29/2012 - 15:05 | 2574192 ebworthen
ebworthen's picture

Bullish for champagne, caviar, and summit meeting caterers and servers.


Fri, 06/29/2012 - 15:07 | 2574201 otto skorzeny
otto skorzeny's picture

"I've seen these Champagne Socialists in Business Class."-Hugh Hendry's best quote

Fri, 06/29/2012 - 15:35 | 2574319 ebworthen
ebworthen's picture

Exactly, anything but walk the walk.

They should be staying at Motel 6 and eating bologna sandwiches.

Fri, 06/29/2012 - 15:09 | 2574204 Cupid Stunt
Cupid Stunt's picture

Deck chairs rearranged. Waterline still coming up fast.

Fri, 06/29/2012 - 15:19 | 2574249 centerline
centerline's picture

Can someone please ask the band to play a different tune though?  The current one is getting sort of stale.

Fri, 06/29/2012 - 15:21 | 2574260 eclectic syncretist
eclectic syncretist's picture

Slow motion collapse on cruise control.

Fri, 06/29/2012 - 15:11 | 2574213 falak pema
falak pema's picture

Behind the german hype we await the decisions of Bundestag and Karlsruhe. If its yes, then the Euro federalism on a sincere basis, irrespective of whether the PAx Ameriacan unwind will allow it to survive in current structure, can begin. Its civilization tipping point and Euro zone has to invent a new paradigm, UNLIKE PAX Americana short term hubristic thinking, which is alas the continuation of past european hegemonial uber-alles madness, not the legacy of the founding fathers. The world needs a new paradigm, a new beacon to show the way that does not consider the market as the ONLY criterium for decision making like Ricardian-Ayn Randish stupidity. Be inventive, create a post industrial, post financial paradigm, and fuck those who say "greed is good, and the market is my lodestone". Fukk you to your darned soggy socks of stinking Oligarchy market, of head up ass short term blind as a bat logic. We need the sons of greek logic and faith, hope and charity to impose their sincere logic. Post Machiavellian first world! 


Fri, 06/29/2012 - 15:17 | 2574239 centerline
centerline's picture

Amen to that.  Too bad people dont change like that without impetus - usually painful.  Exponential population growth isn't going to end simply because people realize the greater good.  It is going to end because it smacks head first into a wall.  This extend and pretend stuff is about delaying recognition of the ugly truth no one wants to hear.

Fri, 06/29/2012 - 15:18 | 2574248 magpie
magpie's picture

With the defenses spread thin, the markets are going to probe some weak spots first.

Fri, 06/29/2012 - 15:21 | 2574258 TomGa
TomGa's picture

Look where the sons of "greek logic and faith" got Greece.

Fri, 06/29/2012 - 15:24 | 2574276 falak pema
falak pema's picture

they were sons of greek hubris! the Comnenos strain. Greek logic died with Archimedes in 212 BC! 

Fri, 06/29/2012 - 15:25 | 2574277 lemosbrasil
Fri, 06/29/2012 - 15:27 | 2574284 adr
adr's picture

answers? They don't need answers. Look how much money was made today. The billionaires with inside info who piled into oil futures knowing Brian Sack was going to push the buy buttom in celebration of his non-resignation made 10% in one day.

When fraud is this easy, you never need to explain it.

Fri, 06/29/2012 - 15:28 | 2574286 LULZBank
LULZBank's picture

Fuck the European questions maan, answer mine.

Lets say I am the LULZ President of a country, say USA. We introduce a Gold backed currency and ask everyone to bring their Gold over to the Federal Bank in exchange for Fiat notes.

We exchange the Gold with Fiat at a fair market value and all of the Gold is stored away in the Federal Warehouse. Economy is prospering, system is stable and everyone is singing songs of praise of the Gold backed currency.

One day, just for shit and giggles, I take all of the Gold out of the Federal Warehouse by the secret backdoor and ship it "wherever" and in its place put a sacred Wooden GoatTM. Nobody knows about the switch.

Okay.. okay.. only few of us elites know about the switch, and also that we have been secretly printing more dollars than Gold we had in the Federal Warehouse, but the sheeple does not know.

So technically the currency is now backed by my sacred Wooden GoatTM. BTW, its not just any wooden goat, its a "debt busting," triple AAA rated wooden goat with a 100 Trillion USD price tag as per the valuation by the biggest Investment bank.

Uptick: If you think it will not work.

Downtick: If you think it will work.

Fri, 06/29/2012 - 15:35 | 2574315 Cupid Stunt
Cupid Stunt's picture

Ain't that already happend ?

Fri, 06/29/2012 - 15:44 | 2574364 LULZBank
LULZBank's picture

Wait for the next part to my thesis. First wanna see some PM bug reactions... for teh LULZ.

Fri, 06/29/2012 - 15:41 | 2574352 magpie
magpie's picture

You obviously meant to say all of those Euro-will-be-gold-backed theories are complete BS

Fri, 06/29/2012 - 15:36 | 2574321 Paulson Bazooka
Paulson Bazooka's picture

"One money, one banking system, one fiscal policy?"

Ein reich, ein volk, ein führer?


Fri, 06/29/2012 - 15:40 | 2574348 SmoothCoolSmoke
SmoothCoolSmoke's picture

Criminal Elite Inc., they make the mob look like schoolboys.

Fri, 06/29/2012 - 15:48 | 2574350 slewie the pi-rat
slewie the pi-rat's picture

there's no hurry

Fri, 06/29/2012 - 15:46 | 2574370 SmoothCoolSmoke
SmoothCoolSmoke's picture

Funny how the smartest people in the market (Criminal Elite) AND the dumbest people in the market (buy and hold - don't know what else to do -  mutual fund sheep) have made the most money since 666.

THe vast majority of the rest, have just outsmarted themselves over and over.

Fri, 06/29/2012 - 16:55 | 2574650 HaroldWang
HaroldWang's picture

Very well said and true.

Fri, 06/29/2012 - 17:01 | 2574684 Snakeeyes
Snakeeyes's picture

All that happened today was Merkel agreed to a Euro version of the Federal Reserve. Did the Fed save us? Of course not. So the agreement to do direct bank bailouts will not have a lasting effect.

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