260 lines
8.1 KiB
Plaintext
Executable File
260 lines
8.1 KiB
Plaintext
Executable File
finance
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comment
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ambroseevans_pritchard
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8212936
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-----
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# Self-righteous Germany must accept a euro-debt union or leave EMU
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## If Germany and its hard-money allies genuinely wish to save the euro -
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which is open to doubt - they should stop posturing, face up to the grim
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imperative of a Transferunion, and desist immediately from imposing their
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ruinous and reactionary policies of debt deflation on southern Europe and
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Ireland.
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![EU leaders failed to grasp the nettle at last week's summit, despite riots
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in Rome][1]
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EU leaders failed to grasp the nettle at last week's summit, despite riots in
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Rome
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[![Ambrose Evans-Pritchard][2]][3]
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By [Ambrose Evans-Pritchard][4], International Business Editor 9:00PM GMT 19
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Dec 2010
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[Comments][5]
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One can sympathise with the German people. Their leaders in the 1990s told
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them "famine in Bavaria" was more likely than the preposterous suggestion that
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Germany might have to bail out countries as a result of EMU.
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But events have moved on and, rather than striking tones of Calvinist
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righteousness, the Teutonic bloc might do well to acknowledge equal
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responsibility for the capital flows, trade imbalances, and cumulative errors
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that caused the EMU debacle, and therefore accept that the honourable course
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is to meet the struggling south halfway.
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Readers may have a better menu, but here is my own rough sheet: a debt union,
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funded by Eurobonds; a calibrated jubilee on traditional IMF lines for
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Ireland, Greece, Portugal, and if necessary Spain, to occur in parallel with
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austerity cuts; and a monetary blitz by the European Central Bank to prevent
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the victims tipping into core deflation, even this stokes inflation of 4pc or
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5pc in northern Europe.
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It beggars belief that the ECB should continue to allow the contraction of the
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M3 money supply and credit to private firms. Since EU leaders have already
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shown their willingness to ram through treaty changes without full
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ratification under Article 48 of the Lisbon Treaty, they can likewise bring
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ECB ideologues to heel with a new mandate.
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If the Teutonic bloc cannot accept such a political revolution, it should
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withdraw from monetary union before inflicting any more damage to the social
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fabric of southern Europe, or at least allow a 30pc appreciation within EMU by
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creating a _Doppelmark_.
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## Related Articles
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* [ECB raises concerns about rights to Irish bank collateral][6]
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20 Dec 2010
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* [Euro falls amid continuing debt crisis fears][7]
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20 Dec 2010
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An internal adjustment could be done overnight, if necessary with temporary
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capital controls. The residual euro states would undergo a relatively seamless
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devaluation to levels that reflect the reality of current account deficits and
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labour productivity, yet their existing contracts in euros would be upheld.
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Creditor states - and Britain - would have to stand ready to recapitalise
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their own banks at great cost to fortify them against the systemic shock of
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haircuts on the entire debt stock of peripheral EMU. True burden-sharing at
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last.
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Needless to say, EU leaders failed to grasp the nettle at last week's summit,
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despite a pre-insurrectional mood in Athens where one former minister was
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bludgeoned by anarchists outside parliament, and in Rome where a police
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officer was almost lynched in political violence that left 80 people injured.
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Not even the warning shot of Spain's debt auction on Thursday seemed to break
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the impasse. Chancellor Angela Merkel must know that the Spanish state,
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juntas, and banks cannot refinance €300bn (£254bn) next year at a bearable
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cost if the Tesoro is already paying a decade-high of 5.45pc to sell 10-year
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bonds, yet she continues to play for time she does not have.
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"Behind the curve", was the understated rebuke by IMF chief Dominique Strauss-
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Kahn.
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His own IMF team has indicated the policy that it is being told to enforce as
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junior partner of the EU rescues. It warned of "adverse fiscal and financial
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feedback loops" in Ireland, in its latest report.
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"A prolonged period of deep recession could weaken loan repayment capacity of
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households and businesses and increase bank losses beyond current projections,
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leading the economy into a negative spiral. Wage and price deflation - coupled
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with contraction in activity - could have a powerful negative effect on debt
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dynamics," it said.
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"There are significant risks that could affect Ireland's capacity to repay the
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Fund," it said. Indeed, so why is the IMF board giving a green light to this
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obscurantism?
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The EU torture policy of thrusting yet more debt on crippled states already
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caught in a debt trap - and then forcing them even deeper into downward spiral
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with a 1930s policy of wage cuts and "internal devaluation" - is an
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intellectual disgrace.
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Let it never be forgotten that Ireland and Spain are struggling because EMU
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caused a collapse in real interest rates to -1pc or -2pc, setting off an
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uncontrollable boom. This is what the Gold Standard did to Germany in the late
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1920s, when US banks funded a German credit bubble. That ended with the
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destruction of German democracy.
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Klaus Regling, the EU's chief bail-out officer, said Eurosceptics will "eat
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their words again" as the policy is vindicated. Excuse us, Dr Regling, but we
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have not yet eaten any words on the fundamental critique of EMU. Perhaps it is
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unkind to point out that Dr Regling was the European Commission's director-
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general of economic affairs from 2001 to 2008, more or less spanning the
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incubation period of the catastrophe now at hand.
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To borrow the immortal line from Watergate: what did you know and when did you
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know it?
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[X][8] Share & bookmark
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[What are these?][9]
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* Share: [Share][8] [ ][10] [ ][11]
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[Tweet][12]
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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8212936
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/Self-righteous-Germany-must-accept-a-euro-debt-union-or-leave-EMU.html
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Telegraph
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## [Ambrose Evans-Pritchard][3]
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* ### [Europe »][13]
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* ### [Finance »][14]
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* ### [Comment »][15]
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* ### [Economics »][16]
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* ### [Business Latest News »][17]
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In finance
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[![A protester stands opened armed in front of the military in Pearl Square in
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Bahraini capital Manama][18] ][19]
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### [Energy crunch as nuclear and oil both go wrong][19]
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[![Will 'Chindia' rule the world in 2050, or America after all?][20] ][21]
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### [Will 'Chindia' rule the world in 2050, or America after all?][21]
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[![From the overheating East to a troubled West, Ambrose Evans-Pritchard
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offers his predictions on the global economy next year.][22] ][23]
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### [Predictions for 2011: Overheating East to falter][23]
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[X][8] Share & bookmark
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][9]
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Share:
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* [ ][8]
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* [ ][10]
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* [ ][11]
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* [Tweet][12]
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* Advertisement
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![][24]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][25] [blog
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comments powered by Disqus][26]
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[Market Data »][27]
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2. [Dominique Strauss-Kahn: DNA samples confirm sperm traces on maid's
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var puffs_8254894 = new Array();
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