A "reordering" of the European Union under discussion?

[Schadenfroh]

As we watch the PIGS implode:
http://www.reuters.com/article/2011/11/09/us-greece-idUSL6E7M601O20111109

A deal on forming a Greek national unity government collapsed as the country headed toward an economic abyss

http://www.reuters.com/article/2011/11/09/us-eurozone-idUSTRE7A831520111109

Italian borrowing costs reached breaking point on Wednesday

A new order might rise from the ashes of the (currently broken) EU system:
http://www.reuters.com/article/2011/11/09/us-eurozone-future-sarkozy-idUSTRE7A85VV20111109

German and French officials have discussed plans for a radical overhaul of the European Union that would involve setting up a more integrated and potentially smaller euro zone, EU sources say.

This should have been the original implementation of the EU. Bind the economic power houses of Europe that have proven fiscal track-records into a tight political and economic union. Maybe a two-tiered system with prime countries sharing the same currency, fiscal laws, etc. and the remainder of Europe enjoying a NAFTA-like system in which they can freely devalue their own currencies and inflate their debt away. A strong and prosperous (albeit smaller) EU could emerge from this.

 

[mshan]

As long as the temporary technocrat Greek government that eventually emerges honors the 50% hair cut for austerity measures agreement that Papendreou previously agreed to, I suspect markets won't care who the Greeks elect next February.*

Reason I say that is this guy thinks Italy can tolerate 7 - 8 % borrowing costs for a quarter or two, and that the real debt crisis in Italy will unfold early next year (http://video.cnbc.com/gallery/?video=3000056310)

If EU / ECB / IMF / US / other can put in place an iron-clad and credible plan that markets believe definitively deals with the dilemma of how Italy deals with it's mountain of debt (over time) before February, then I suspect markets won't care Greece failed to exist as a country at that point and going forward.

If a concrete plan to solve Italy isn't in place by then, look out below (?)






* My guess as to why honoring the this not a formal default 50% Greek hair cut for austerity measures is important is that lots of banks in Europe (Morgan Stanley (?), too, given how aggressively it seems to trade down when Euro-Angst spikes) is because it would trigger actual CDS payouts, ala what I think I remember happened after AIG was bailed out by U. S. taxpayers and some of that money went to Goldman, BoA / Merrill Lynch, Societe Generale, Deutsche Bank, other (http://www.marketwatch.com/story/aig-details-105-billion-payouts-banks) as 100% payout of cds swaps (I would guess that European banks et al. wrote these cds swaps during bubble years when they thought there was no risk of default and that they thought they were essentially writing profitable insurance policies that would never need to pay off). Angela Merckel may be trying to prevent this from occurring again and is playing hardball with speculators that are trying to foment an acute crisis right now. Charles Dallara, who I believed represented a lot of systemically important banks, agreed not to file a formal claim to collect on CDS and instead accept 50% haircut (I've seen commentary that banks are already aggressively writing down this debt to 40% of face value (some say Greek bonds really need 60 - 70% haircut if they are actually able to pay off remaining debt over time, if they can eventually grow), because uncontrolled defaults might spiral out of control and those same banks may eventually need to be nationalized by their respective countries. A commentator on Bloomberg Rewind was discussing hidden and unknown exposure of U. S. banks to Europe and specifically mentioned Citi, Goldman, and Morgan Stanley.

(I recognize that this is very coarse and broad-brush and just based upon what a non-financial layman (me) has read on internet or seen on tv, so, as always, do your own due diligence)

 

[0roo0roo]

http://www.youtube.com/watch?v=VBWiQlS5Qg0&feature=related
Kyle bass explains.....

 

[Whiskey16]

Maybe a two-tiered system with prime countries sharing the same currency, fiscal laws, etc. and the remainder of Europe enjoying a NAFTA-like system in which they can freely devalue their own currencies and inflate their debt away. A strong and prosperous (albeit smaller) EU could emerge from this.

There has long been a separation from that of the European Union and the Euro-Zone (currency). The EU rose after the Treaty of Maastricht from the European Economic Union, which well predated NAFTA....so be careful with your myopic lectures of lessons to be had by those only familiar with relatively tardy economic treaties in this world.

Not all EU states are members of the Euro-Zone and sharing the same currency.

[edit]
The Euro (not to be conflated with the EU as so many do) currency expanded too quickly among some relatively disparaged states. That cannot be undone without a great cost to the currency and to those states that would then opt for an alternative. Once a currency has been chosen it cannot be repealed/replaced without the willingness of the state making the change. Such a currency change may not be externally imposed.

As the Euro expanded too quickly, expect all future acceptance of a state into the European Union to find it far more difficult to be welcomed into the Euro Zone.

 

[cybrsage]

Confederations always fail.

 

[peonyu]

And just a few short years ago there were talks of allowing Turkey to join. Hah. If Turkey joined imagine how fcked the EU would be right now, it would probably be completely dissolved by now. That country is dirt poor by European standards, and thats not even going into the vast cultural differences [Muslim nation, only 5% of it is in Europe etc].

What this comes down to is greed and power hungry idiots in Western Europe reaping what they sowed, by yelling expand! expand! expand! And now its biting them in the ass.

Poland and other Eastern European countries surely have hurt the EU aswell but I dont think the EU leadership wants to admit it right now since they only joined 7 years ago.

 

[Dr. Zaus]

Confederations always fail.

This is why they need a strong central government .

 

[Anarchist420]

Confederations always fail.

They actually don't. The Articles of Confederation didn't fail.

Also, the EU isn't a confederation

 

[cybrsage]

The Articles of Confederation failed so miserably they threw them away and started over from scratch.

Only an anarchist would say a confederation is any good...for that is what a confederation creates amongst the disjointed peoples.

 

[0roo0roo]

And just a few short years ago there were talks of allowing Turkey to join. Hah. If Turkey joined imagine how fcked the EU would be right now, it would probably be completely dissolved by now. That country is dirt poor by European standards, and thats not even going into the vast cultural differences [Muslim nation, only 5% of it is in Europe etc].

What this comes down to is greed and power hungry idiots in Western Europe reaping what they sowed, by yelling expand! expand! expand! And now its biting them in the ass.

Poland and other Eastern European countries surely have hurt the EU aswell but I dont think the EU leadership wants to admit it right now since they only joined 7 years ago.

Yea if you watch any bbc you see their talking heads spew crap about sovereignty being an obsolete idea and other nonsense. Always the justification is that without the eu germany is going to invade, its just bullshit at this point.

 

[William Gaatjes]

And just a few short years ago there were talks of allowing Turkey to join. Hah. If Turkey joined imagine how fcked the EU would be right now, it would probably be completely dissolved by now. That country is dirt poor by European standards, and thats not even going into the vast cultural differences [Muslim nation, only 5% of it is in Europe etc].

What this comes down to is greed and power hungry idiots in Western Europe reaping what they sowed, by yelling expand! expand! expand! And now its biting them in the ass.

Poland and other Eastern European countries surely have hurt the EU as well but I don't think the EU leadership wants to admit it right now since they only joined 7 years ago.

I agree.

Quick expanding and expecting quick results. Sounds like the typical short sighted manager. No plan to stimulate the economy of a new Eu country over a period of decades.. Just a big bag of money and that is it. That never works...
Although i think Poland sooner or later will catch up. Polish are workers. The issues is that the jobs should be created in Poland. And i think that is the general problem of the EU. Instead of stimulating local markets, it was promoted that any eu citizen can work everywhere. No Borders Yay ! Wrong.
Help develop to create local markets that are self sustaining. This means agriculture, clothing, education and materials on a smaller scale. But no, overproduction to dump items on the market and kill prices and profit for every major producer. Good for the customer they say... Next thing you know, the eu had to subsidize for example agriculture... And where does that money come from ? Higher taxes, reduced pension funds... Reduction of quality of public schools... Just to name a few.
Left people are idiots. Right people are idiots too... Where is the common sense...

 

[the DRIZZLE]

IMO this will go one of two ways. Either will integrate much more tightly and give up a significant amount of sovereignty, or the EU will essential dissolve. There is way too much moral hazard in the current confederate structure.

 

[cybrsage]

Yep, confederations always fail. Too much infighting to work.

 

[peonyu]

I agree.

Quick expanding and expecting quick results. Sounds like the typical short sighted manager. No plan to stimulate the economy of a new Eu country over a period of decades.. Just a big bag of money and that is it. That never works...
Although i think Poland sooner or later will catch up. Polish are workers. The issues is that the jobs should be created in Poland. And i think that is the general problem of the EU. Instead of stimulating local markets, it was promoted that any eu citizen can work everywhere. No Borders Yay ! Wrong.
Help develop to create local markets that are self sustaining. This means agriculture, clothing, education and materials on a smaller scale. But no, overproduction to dump items on the market and kill prices and profit for every major producer. Good for the customer they say... Next thing you know, the eu had to subsidize for example agriculture... And where does that money come from ? Higher taxes, reduced pension funds... Reduction of quality of public schools... Just to name a few.
Left people are idiots. Right people are idiots too... Where is the common sense...

Poland could catch up but its hard to say if it will now. There is a serious drain of native workers there since they can go to Western Europe and earn 5x more pay for the same work. Can anyone blame them ? I cant. And with the way the EU leadership thinks, in Poland they might resort to bringing in immigrant workers from North Africa to "fix" the labor issues in Poland. Of course the EU leaders dont look at how [poorly] that worked in their own countries, and how it created social issues and a poor immigrant under class. Its a bandaid fix to make the issue "go away" for a few years.

 

[William Gaatjes]

Poland could catch up but its hard to say if it will now. There is a serious drain of native workers there since they can go to Western Europe and earn 5x more pay for the same work. Can anyone blame them ? I cant. And with the way the EU leadership thinks, in Poland they might resort to bringing in immigrant workers from North Africa to "fix" the labor issues in Poland. Of course the EU leaders dont look at how [poorly] that worked in their own countries, and how it created social issues and a poor immigrant under class. Its a bandaid fix to make the issue "go away" for a few years.

I know. But it is the the case that the problem is created by left people who have hippy thoughts.
They pretend to be so wise, while they forget that people grown up in another culture have also a different mindset. Most immigrants will adjust easily when helped, others will have more difficulty. The obvious exceptions. However, when anyone dares to mention that immigrants should be more encouraged, all of a sudden, words such as holocaust and nazi are shouted. Which is ridiculous, because helping people to be a bit more adjusted is nothing at all as wanting those people dead. It is the opposite. To increase the chance of assimilation of people and different aspects of cultures to something new and decrease frustration and integration issues.
But when you mention something like this, there will always be someone who calls you Hitler...

 

[Saracen]

IMO this will go one of two ways. Either will integrate much more tightly and give up a significant amount of sovereignty, or the EU will essential dissolve. There is way too much moral hazard in the current confederate structure.

Even if things go the way of far tighter integration, that won't necessarily mean the EU is stable.

For a start, as was pointed out above, only 17 of 27 states are Eurozone members, and at least some of those that aren't, notably the UK,l do not want to be, now or in the foreseeable future.

So if the 17 integrate, that puts real stresses between those 17 and the other 10.

And if they do integrate, does that include Greece, and perhaps Italy? If so, in implies a huge transfer of funds from those with money and structurally sound economies, mainly Germany, to those with, mainly, most of the rest. Will the German voters put up with that, even if their politicians will.

I heard one political pundit recently say something to the effect of the following ....

EU leaders know exactly what to do to resolve the Euro crisis. They just haven't a clue how to get re-elected after they've done it.

The EU is, and arguably always was, a primarily political project, and one in which the ambitions of the technocrats and politicans running it have leapt way ahead of the ability of the institutions to cope with it, and ahead of enough economic harmonisation among vastly diverse economies and cultures that something like this was inevitable. The 2007/08 crash may have triggered the current mess, but it's only one factor, and a relatively small one, in causing it. The problems are primarily home-grown.

 

[sandorski]

And just a few short years ago there were talks of allowing Turkey to join. Hah. If Turkey joined imagine how fcked the EU would be right now, it would probably be completely dissolved by now. That country is dirt poor by European standards, and thats not even going into the vast cultural differences [Muslim nation, only 5% of it is in Europe etc].

What this comes down to is greed and power hungry idiots in Western Europe reaping what they sowed, by yelling expand! expand! expand! And now its biting them in the ass.

Poland and other Eastern European countries surely have hurt the EU aswell but I dont think the EU leadership wants to admit it right now since they only joined 7 years ago.

Coincidentally, it was the Bush Admin pushing hard for that to happen.