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Walk Thru For The Upcoming European Treaty Changes - Is A Redemption Fund The "Transitory" Hail Mary?
Once again today was marked by ongoing disagreements over the form of any and every solution (or non-solution) to the 'problem' that is the Euro-Zone. At every corner, the EU Treaties are dragged up as impediments to the free-and-easy save-us-with-your-printing-press argument (among others). Credit Suisse provides an excellent summary of the relevant sections and while their perspective is that the Treaties do provide some flexibility for the ECB to extend its operations (and the incumbent introduction of much stronger fiscal watchdog measures), Euro-bonds will (no matter what and certainly not a slam-dunk for success) require a full Treaty change - a process that could take years. There are currently three options being discussed for the Stabilittee bonds - all of which have more than short-term time horizons for any potential implementation and so we suspect, as CS mentions, that the talk of the Redemption Fund from the German Council of Economic Experts will grow louder as an interim step.
The most likely-to-be-successful-at-stemming-the-tide euro-bond options discussed in the EU's green paper are likely to take too long to deliver workable solutions to the current crisis that the market is clearly growing impatient for:
Credit Suisse: Treaty Talk
The one consistent message from all the headlines, particularly those out of Germany, is that the Treaties are likely to be central to forthcoming policy announcements, with the focus on increasing economic surveillance to reduce moral hazard and pave the way for further integration and, the market hopes, greater ECB intervention and/or joint issuance.
The European Commission’s green paper on Eurobonds is notable for the extent to which it discusses the fiscal framework that would first need to be in place, with a particular focus on increased surveillance and intrusiveness in national fiscal policies.
We would expect more details to trickle out in the course of the next two weeks – the Eurogroup meets on 29 November and the heads of state on 9 December. The question is how much can be achieved based on the Treaties as they are, and how much requires them to be changed. By way of background, we outline excerpts from some of the relevant parts of the Treaties – the wording of which we seem fated to become increasingly familiar with...
And then - here are the articles related to bailout and budgetary discipline:
The much stricter surveillance is likely to spook many individual nations:
New regulations proposed by Commission based on Article 136
One example of some of the changes being proposed are the two regulations suggested by the European Commission in its green paper on Eurobonds, based on Article 136:
1. The proposal for a Regulation on common provisions for monitoring and assessing draft budgetary plans and ensuring the correction of excessive deficit in the euro area Member States pursues the triple aim of (a) complementing the European semester with a common budgetary timeline aiming at better synchronizing the key steps in the preparation of national budgets; (b) complementing the multilateral surveillance system of budgetary policies (the preventive arm of the SGP) with additional monitoring requirements in order to ensure that EU policy recommendations in the budgetary area are appropriately integrated in the national budgetary preparations and (c) complementing the procedure for correction of a Member State's excessive deficit (the corrective arm of the SGP) by a closer monitoring of budgetary policies of Member States in excessive deficit procedure in order to secure a timely durable correction of excessive deficits;
2. The proposal for a Regulation on enhanced surveillance ensures that a euro area Member State should be subject to enhanced surveillance when it is experiencing – or
at risk of experiencing – severe financial disturbance, with a view to ensuring its swift return to a normal situation and to protecting the other euro area Member States against possible negative spill over effects.
The German Constitution - The Germans do indeed run the show for now
A further consideration for the evolution of euro area financial stability mechanisms are the nationals laws in the member states. For example, the German Constitutional Court ruling of 7 September 2011, of which the key parts are:
“When establishing mechanisms of considerable financial importance which can lead to incalculable burdens on the budget, the German Bundestag must therefore ensure that later on, mandatory approval by the Bundestag is always obtained again. In this context, the Bundestag, as the legislature, is also prohibited from establishing permanent mechanisms under the law of international agreements which result in an assumption of liability for other states’ voluntary decisions, especially if they have consequences whose impact is difficult to calculate. Every larger scale aid measure of the Federation taken in a spirit of solidarity and involving public expenditure at international or European Union level must be specifically approved by the Bundestag. Sufficient parliamentary influence must also be ensured with regard to the manner in which the funds that are made available are dealt with.”
“… the Federal Government is in principle obliged to always obtain prior approval by the Budget Committee before giving guarantees.”
Changing the Treaties
Amendments to the Treaties are covered in Article 48 of The Treaty of the European Union. There are two procedures:
1. Ordinary revision procedure
- Proposals to amend the Treaties are submitted by either a Member State, the EP or the EC to the European Council.
- The European Council consults both the EP and EC and then votes to consider the proposals on the basis of a simple majority.
- Intergovernmental Conventions take place in order to draft and finalise the revision of the Treaty.
- EU leaders sign the Treaty
- All member states must ratify the treaty, either by Parliamentary process or by Referendum. A unanimous vote is needed.
2. Simplified revision procedure
- Proposals to amend Part three of the Treaty only
- Cannot increase the powers of the EU – these must follow the ordinary revision procedure.
- The European Council votes to adopt a decision amending Part three.
- All member states must ratify the Treaty, either by Parliamentary process or by Referendum. A unanimous vote is needed.
N.B. All of the Articles outlined above, with the exception of Article 352, are in Part three of the Treaty on the Functioning of the European Union.
We can therefore broadly break down the implementation of proposals into three ways – with the first the easiest:
- In the context of the Treaties as they stand, via the Council
- Treaty change under the simplified revision procedure
- Treaty change under the ordinary revision procedure
Eurobonds – an evolutionary process at best
From the above, it is evidently clear that while there would appear to be flexibility for enhancing surveillance and enforcement of budgetary discipline within the scope of the Treaties, this is highly unlikely to be the case for the issuance of Eurobonds. We outline in Exhibit 3 the three options outlined by the European Commission in their green paper – the EC have denoted them “Stability Bonds” rather than Eurobonds.
As we have seen from the EFSF, bonds issued with several guarantees and enhancements (Option 3) are unlikely to be sufficient. Since more plausible options (for increasing demand and fostering stability and low market yields) require Treaty change, they are not likely to come into existence for some time. The best we can really expect is a strong commitment to further integration with a clear outline of the path, including the role proposed for Eurobonds, plus an interim measure, possibly some evolution of the EFSF. Although there are arguments to keep the EFSF as it is to provide cover for the ECB, and start again with another facility that is better-designed to deal with more systemic funding issues.
We raised the question in our EFSF (R)evolution publication whether progress was likely to be by evolution or revolution. In the case of Eurobonds, evolution looks by far the most likely. One proposal that might be able to co-exist with the Treaties as they are is the recommendation of the German Council of Economic Experts, pooling sovereign debt in a Redemption Fund as we discussed briefly last week. We are quite surprised that the idea does not seem to have generated more traction in the press since it is one of few proposals that actually provides a means for reducing debt (rather than moving it around the euro area) and is aimed not to fall foul of the German Constitution. Something based around this idea might be a contender for a precursor to permanent Eurobonds, buying time while the Treaties are changed.
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Hmmmm
http://www.dw-world.de/dw/article/0,,15554758,00.html
It's a more fun way of saying "shell game", "Three Card monty", "Denver drop".
Doesn't matter how it's implemented, Greece is out.
http://www.euronews.net/2011/11/24/new-taxes-spark-more-riots-in-greece/
OT: New food bill in New Zealand takes away human right to grow food
http://investmentwatchblog.com/new-food-bill-in-new-zealand-takes-away-human-right-to-grow-food/
OK, now I am scared.
They are attempting to pass similar legislation in all western countries not just New Zealand.
Canada as well
http://www.dailyimpact.net/2011/07/18/gardening-a-crime-in-canada-too/
http://www.rawstory.com/rawreplay/2011/07/michigan-woman-faces-jail-time...
http://eatdrinkbetter.com/2011/05/11/canadians-fined-5200-for-growing-ve...
http://www.naturalnews.com/030418_Food_Safety_Modernization_Act_seeds.html
http://www.govtrack.us/congress/bill.xpd?bill=s111-2758
The complete food lock down in the US will happen with the third food "safety" bill being introduced in four months. Canada is doing it on the softer and weaker city and suburban municipal level. Provincial and Federal it would never be discussed.
Perhaps 'someday', just perhaps, people will recognize and acknowledge UN mandates and call them what they are. This, like many other issues are not "local" issues.
As long as we refuse to acknowledge and debate the threat to our individual National Sovereignty will continue to seriously erode away and we will continue to move from a Constitutional Republic to a UN Democracy...
OK, now I am scared.
so scared that you're stuttering
Why grow your own food when you can kill and eat your neighbours dog for free?
Why grow your own food when you can kill and eat your neighbor for free? That the direction they intend to push us toward.
We as New Zealander's will murder or die trying (in the case of this country the former but i fear other peoples situations) before we let them control this on a real level.
This is pathetic.
P.s our police do not have guns. But we do.
I admit... I didn't feel like reading this entire post....
Tyler... I don't understand how you keep up with all this shit man :)
Tyler clones.
if i were merkel's hubby, i'd slug that little worm sarkozy, and shove hot bagettes up his ass! even merkel's wedding and honeymoon pics, have that little worms mug all over the place!
900 year 0% bond.
Duration isn't long enough...
After hearing of the Greek "Century Bond" idea, I mused in a post a couple of months ago what's really needed now is a "Millenium Bond" maturing in 3012.
Eurobonds change nothing. They just raise the cost of borrowing of the true AAA countries. Not sure why say Finland would want to pay 5% for money that it can presently borrow at 3%. But I think there is a bigger point here that no one wants to address, or just tries to avoid. If the last 2 years have taught the debt markets anything, it is that the debt for periphery Europe has been massively mispriced since the launch of the EURO. Regadless of any solution, I doubt that we will ever see spreads at the previous levels. Even if a Eurobond is launched, the rates will be unsustatainable for the entire Eurozone. But I guess the idea is just to kick the can down the road and wait for something good to happen. jAnd on that note, and for whatever it is worth, maybe Merkozy should do a pilgramige to Fatima, because it is patently obvious that the solution to their problem does not lay in this world.
From Adam Fergusson's book on Weimar Germany, "When Money Dies: the Nightmare of the Weimar Hyper-Inflation", page 255:
"What really broke Germany was the constant taking of the soft political option in respect of money."
From George Santayana (http://en.wikiquote.org/wiki/George_Santayana):
"... when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it."
In the latest Polls, 70%+ of the German people oppose further bailouts to what they see as the profligate South (I wonder why?). So the changes will NOT be approved by the people anyway. Why doesn't Germany just exit the Euro and leave the rest of them to play their silly little pretend games and sell them German made printing presses?
Come on.....do you think the German people are going to get a vote on treaty changes. No way, more polsters who arrive at the `correct` readings of public oppinion maybee - debate, consultation and democracy? I bet against it.
Tyler, it is too complex: can you just tell me if BAC will go up or down tomorrow? /sarc
it depends which way you'll hold the chart.
Is that after a few cocktails or before?
Booze, it's not just the bottom line, it is the purest fundementals of trading a dead bank. You would have to be drunk to consider trading it.
I can tell you if BAC breaks $5 then it is in all likelyhood going alot lower. Stocks below $5 are no longer able to be held on margin and therefore selling will beget more selling. At that point IMO it is no longer just about the EU and things can get rather ugly very quick.
the whole intent is to increase debt, not reduce it! laws and rules will be broken for the benefit of increasing debt! the markets rise with debt, fall when there's a threat of paying off debt! we 99% can get them where it hurts by not playing their game! STOP ALL ACTIVITY, BRING EVERYTHING TO A STANDSTILL! WE CAN STOP THE MONEYFLOW!!!!!!!!
That's never going to happen, because 99% of the 99% neither know nor care. They just read the financial news in their morning paper, shake their heads a little, and go about their usual lives.
I envy them.
Just another misdirection scheme which shuffles all the smelly debt into a large bag but offers no realistic way to repay it. It is too little and too late. Euro is going down now fast and hard. Markets signaled on Tuesday with the failed German auction that it's game over. ECB may eventually print but it will be without Germany in the Euro as Merkel has painted herself into a no printing corner to save her fat political ass. D-Mark printing begins in 3...2...1.
That is not going to happen.
Go back to the drawing board.
"That is not going to happen." I was thinking the same thing and maybe that's why the Germans had all that leaving the Eurozone, but not Europe talk not so long ago. I don't know. On one side, I'd really like to see our politicians bow to stricter fiscal rules, since they're a bunch of croocks, on the other hand all of them are a bunch of crooks.
Lord, I hope you are correct.
But my suspicions of the EU commision`s ability to manipulate anything to their own ends are very high.
An implementation of special emergency powers would not suprise me.
Sure there would be a fuss - but `they` would assume the disent would fade rapidly.
But as me Lord must surely know, all EU laws are "self modifying"
hail mary, redemption, stabeletee. it is all down to prayers for money.
reaching ever lower to evangelical levels begging for a bailout.
church of the euro is next. manditory participation (stabeleteetaxazion)
Yes.
That is so freaking scary, I can't take it. Is there not one inch of the planet that they won't control. Can't everyone pool their money together to lobby for the human race.
Can someone please provide a rational explanation to what this actually means: "...increasing economic surveillance to reduce moral hazard..." I just can't seem to wrap my head around this phrase. "Moral hazard?"
My guess. Moral hazard means the periphery can get away with keep borrowing with no effects to the costs of their borrowing. Their rates would fall, because Germany is taking the strain and would continue to do so whatever theperiphery's borrowing needs in future.
So Germany wants to put the rule over each individual country to ensure that they're not borrowing recklessly...agian.
Question by a thicko.
Eurobonds. Can someone please tell me why these bonds would be any more stable than Germany's bonds? And even worse. 'Cos, surely, at the end of the day, the entire Euro debt problem would be transferred to the German balance sheet. And then 'kaboom'??