Martin Feldstein: A weaker euro for a stronger Europe

Europe's policymakers must intervene to weaken their currency

Martin Feldstein
May 12, 2014 Last Updated at 21:50 IST

Don't Invest in the Euro
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Despite the recent upturn in some of its member countries, the euro zone's economy remains in the doldrums, with the overall rate of annual gross domestic product (GDP) growth this year likely to be only slightly higher than one per cent. Even Germany's growth rate is below two per cent, while GDP is still declining in France, Italy and Spain. And this slow rate of growth has kept the euro zone's total unemployment rate at a painfully high 12 per cent.

Slow growth and high unemployment are not the euro zone's only problems. The annual inflation rate, at just 0.5 per cent, is now so close to zero that even a minor shock could push it into negative territory and trigger a downward price spiral. Deflation would weaken aggregate demand by raising the real (inflation-adjusted) value of household and corporate debt, and by increasing real interest rates. Lower demand could, in turn, cause the fall in prices to accelerate, sending prices into a dangerous tailspin.

There are few if any panaceas in economics. But a sharp decline in the euro's exchange rate - say, by 15 per cent - would remedy many of the euro zone's current economic problems. A weaker euro would raise the cost of imports and the potential prices of exports, thus pushing up the euro zone's overall inflation rate. Devaluation would also boost average euro zone GDP growth by stimulating exports and encouraging Europeans to substitute domestically produced goods and services for imported items. Although competitiveness within the euro zone would be unaffected, a weaker euro would significantly improve the external balance with the rest of the world, which accounts for about half of euro zone trade.

European Central Bank (ECB) President Mario Draghi has emphasised his concern that the euro's rise over the past three years has increased the risk of deflation. But it was his famous declaration in July 2012 that the ECB would do "whatever it takes" to preserve the euro that, while successful in reducing interest rates in the distressed countries of the euro zone periphery, also contributed to the euro's current strength.

Today, neither Mr Draghi's recent statements nor the prospect of an American-style programme of large-scale asset purchases (also known as quantitative easing) has caused the euro to weaken or the inflation rate to move back towards the target level of two per cent. So the operative question is how to reduce the euro's relative value while maintaining the perception of stability that Mr Draghi helped to establish in 2012.

Because quantitative easing by the ECB has been advocated as a way to weaken the euro, it is worthwhile to examine the impact of its use by the Federal Reserve on the value of the dollar and the inflation rate in the United States.

The short answer is that it did very little to affect either. The real trade-weighted value of the dollar is now at the same level that it was in 2007, before the onset of the Great Recession. It rose briefly during the peak crisis year of 2008, as global investors sought the safe haven of dollar-denominated assets, but retreated during 2009 to its previous level. The dollar's value then remained relatively stable during more than three years of quantitative easing - and actually rose during 2013, when the Fed's asset purchases reached a high of more than $1 trillion.

Of course, other factors influenced the dollar's value during this period as well. Nonetheless, the behaviour of the dollar's exchange rate during the period of quantitative easing offers no support for the proposed use of large-scale asset purchases by the ECB as a way to bring about euro depreciation.

The Fed's quantitative easing also did not cause an increase in the rate of inflation. The consumer price index rose by 1.6 per cent in 2010, when quantitative easing began, then increased somewhat faster in 2011 and 2012, before dropping back to a gain of just 1.5 per cent in 2013, the peak year for asset purchases.

If the ECB wants to reduce the value of the euro and increase the euro zone's near-term inflation rate, the only reliable way to do so may be by direct intervention in the currency market - that is, selling euros and buying a basket of other currencies. While direct intervention to weaken the euro would create challenges in other parts of the world, policymakers in the US and elsewhere should recognise the importance of a more competitive euro to the future of the European economy.

The writer is professor of economics at Harvard University.
Project Syndicate, 2014


Source
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Cyprus delays vote on tax raid on savings

By Associated Press

Monday, March 18, 2013



PhotoCypriot President Nicos Anastasiades, left, and President of the Parliament Yiannakis Omirou ... more 

VIDEO:

Runtime: 01:01 Raw: Cyprus Delays Key Vote, As Protests Ensue


NICOSIA, Cyprus (AP) — A vote on a bailout package for Cyprus that includes an immediate tax on all savings accounts has been postponed until Tuesday evening.

Yiannakis Omirou, the speaker of Parliament, said the delay was needed to give the government time to amend the deal reached over the weekend that prompted an outcry from those who thought their money was safe.

In order to get €10 billion ($13 billion) in bailout loans from international creditors, Cyprus agreed to take a percentage of all deposits — including ordinary citizens’ savings — an unprecedented step in Europe’s 3 ½-year debt crisis.

The news was a big surprise and stoked fears that deposits in other countries could be targeted. Shares around the world and the euro took a pounding Monday even though the Cypriot economy accounts for only 0.2 percent of the combined output of the 17 European Union countries that use the euro.

“The damage is done,” said Louise Cooper of CooperCity. “Europeans now know that their savings could be used to bailout banks.”

The Cypriot government is now trying to modify the terms of the original deal and in particular to get a better deal for small savers with less than €100,000. The weekend deal foresaw a one-off levy of 6.75 percent on those savings, rising to 9.9 percent for those above the €100,000 mark.

Lawmakers in Nicosia are considering how to amend the deal without reducing the total €5.8 billion earmarked to be raised through the measure. One solution doing the rounds is to make the tax more graduated: placing a one-time 3 percent levy on deposits below €100,000, rising to 15 percent for those above €500,000.

Still, the government has a battle to get a majority in the 56-member Parliament — a scenario that could cripple the Cypriot economy.

Some 25 lawmakers from communist AKEL, socialist EDEK and theGreen party have said they would vote down the levy that they had criticized as disastrous.

Any modification must be approved by the other eurozone finance ministers before the Cypriot parliament can vote on it.

“I believe (the levy) was a bad idea but they imposed it on us,” Cypriot Finance Minister Michalis Sarris told reporters in Parliament Monday. Sarris said the levy was the least worst option since the country’s euro area partners had insisted on a much larger savings cut.

Cyprus‘ banks were closed Monday for a scheduled public holiday.


Source: http://www.washingtontimes.com/news/2013/mar/18/cyprus-delays-vote-tax-raid-savings/#ixzz2NuQNWPxd
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Let eurozone stew in its own juice

01 March 2012, Thursday

ASIM ERDİLEK a.erdilek@todayszaman.com

The two-year-old eurozone sovereign debt crisis reached a dubious milestone last week with the default of Greece on its debt to private investors, as part of the proposed second Greek bailout. But the European Central Bank (ECB) refused to accept losses on the Greek bonds it holds, creating a double standard.

Standard & Poor's (S&P) downgraded Greece's “CC” long-term and “C” short-term sovereign credit ratings to “selective default,” after the Greek parliament retroactively inserted “collective action clauses” into sovereign debt contracts of private creditors. They are forced to accept a “voluntary” bond swap whose terms mean highway robbery for them. S&P added that if a sufficient number of private creditors did not agree to the bond swap, Greece would face “an imminent outright payment default,” since it would have access to neither market funding nor official financing through its second bailout, which is conditioned on the successful execution of the bond swap (see my last column). Moody's Investors Service and Fitch Ratings are also expected to declare Greece in default. For the rating agencies a debtor is considered in de facto default when it fails to service its debt, i.e., pay the interest and the principal owed, in full and on time. European Union leaders are evidently upset with the recent sovereign downgrades of Greece and other troubled eurozone members. The European Parliament is considering a draft report to empower the EU Commission to ban issuance of sovereign credit ratings if they are unacceptable to EU members and to create a “fully independent public European Credit Rating Agency.” Since the outbreak of the eurozone crisis, Germany, the eurozone's dominant leader, has pushed the International Monetary Fund (IMF) into getting heavily involved in the bailouts of Greece, Ireland and Portugal. The involvement of the IMF, committing almost 60 percent of its outstanding loans to the eurozone, has been justified in terms of not only its independence and expertise in monitoring how well the bailed out countries meet their performance criteria but also the danger of global contagion from the eurozone crisis. The IMF, with the overrepresentation of Europe on its executive board and with previous as well as present managing directors of French nationality and as an international financial institution which capitalized on the global financial crisis of 2008-2009 to save itself from increasing irrelevance, has been only too eager to get involved. It has been not only too generous in the amounts of its loans but also too lenient in its surveillance of the eurozone borrowers, especially Greece, failing to ensure that they met their performance criteria. Its involvement in Greece's first bailout has been an unmitigated disaster. Why should we expect the IMF to do any better in Greece's second bailout? The eurozone, an inherently defective and rickety monetary union of economically very disparate countries, lacks a foundation of fiscal union and adequate intra-union labor mobility. Since the outbreak of its sovereign debt crisis it not only made feckless attempts to bail out its troubled members through the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), but also tried to turn the entire EU into a half-baked fiscal union under Germany's tutelage. But the future of that fiscal union is now further jeopardized by Ireland's decision to hold a referendum on the European Fiscal Compact, finalized in January and already rejected by the UK and the Czech Republic. Lately, the eurozone also began to seek salvation by the ECB through the Long Term Refinancing Operation I and II. The ECB has been bailing out troubled eurozone banks with unlimited cheap three-year loans, bypassing the ban on lending to eurozone governments directly. But not content to stew in its own juice, the eurozone is seeking more financial help through the IMF from the rest of the world, arguing that otherwise its crisis could trigger another global financial crisis. That scary argument is debatable. The eurozone and the IMF, which is eager to boost its financial firepower by $500 billion to over $1 trillion and thus play an even greater role in the eurozone's salvation, have met stiff international resistance. The G-20 finance ministers and central bank governors declared after their meeting in Mexico City last Sunday that before the G-20 agrees to boost the IMF's financial clout, the eurozone should do more to help itself through its EFSF and ESM firewalls. The German government, which received parliament's approval for the second Greek bailout but now faces a potential legal obstacle put up by the constitutional court, is opposed. Its opposition, like its resistance to the issuance of eurozone bonds to mutualize sovereign debt, is on grounds of moral hazard: That would only encourage other fiscally irresponsible eurozone members besides Greece to act even more irresponsibly. But its real reason is the growing domestic opposition in Germany to throwing more money at salvaging the increasingly doubtful eurozone in its current form. If rich Germany, the largest EU economy, unquestionable leader and major beneficiary of the eurozone, is not willing to have more of its own skin in the game, why should the less rich rest of the world help any more? Source

Sarkozy announces 0.1 percent transaction tax from August

(AFP) – 43 minutes ago

France's President Nicolas Sarkozy gets ready prior to the start of the one hour-long television interview (AFP/POOL, Lionel Bonaventure)

PARIS — French President Nicolas Sarkozy on Sunday announced plans to introduce a 0.1 percent tax on financial transactions to come into effect from August this year in France.

Sarkozy said he hoped to "create a shock" with the controversial "Robin Hood" tax and inspire other European countries to follow his lead, despite vocal opposition from other EU leaders.

He said in a television interview that the tax would enable French companies to keep jobs at home instead of outsourcing them abroad.

Advocates of the tax see it as a potentially significant revenue generator as well as a penalty against speculation, but critics say it could cause investors to pull their money out of countries applying it.

Some governments have in recent years taken up the campaign but most now intend to use the so-called "Robin Hood tax" to help reduce their budget deficits rather than embark on specific social programmes.

France and its major eurozone partners have supported the idea of the tax but now seem divided on how to approach the issue, with the major players in the bloc Germany and Italy advising caution.

Britain is opposed to transaction taxes being implemented across the 27-member EU bloc.

Fuente
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Van Rompuy: S&P rate cut will not affect euro rescue fund

Uploaded by telegraphtv on Jan 17, 2012
Standard & Poor's downgrade of Europe's bailout fund will have no impact on the fund's capacity, the president of the European Council, says Herman Van Rompuy.

Britain draws up emergency plans for collapse of Euro after warnings Italy needs £500bn bailout

Rescue package to give Mario Monti 12 to 18 months' breathing room to implement spending cuts

By James Chapman

Last updated at 8:44 AM on 28th November 2011

Britain is drawing up emergency plans for the collapse of the ‘creaking’ Eurozone amid warnings debt-stricken Italy will need a £500 billion bailout involving billions of pounds of UK taxpayers’ money.

Chancellor George Osborne said the Treasury had ‘stepped up’ contingency planning and aimed to be ready for ‘whatever the Eurozone throws at us’.

It emerged yesterday that the International Monetary Fund, in which Britain is a major shareholder, could be forced to offer Italy a €600 billion (£514bn) rescue package to give its unelected new prime minister Mario Monti 12 to 18 months’ breathing room to implement big tax rises and spending cuts.


Chancellor George Osborne, left, has ‘stepped up’ contingency planning while unelected Italian prime minister Mario Monti, right, could be given breathing room to implement big tax rises and spending cuts

And in another move, German Chancellor Angela Merkel and French President Nicolas Sarkozy were revealed to be plotting a new pact on economic union without consulting Britain or other countries outside of the EU.

They are determined not to give Britain the chance of insisting on powers being handed back from Brussels by negotiating a major new EU treaty.

Germany's original plan was to try to secure agreement among all 27 EU countries for a limited change to the Lisbon Treaty by the end of 2012, making it possible to impose much tighter budget controls over the 17-member Eurozone.

Countries will be forced to submit their budgets for EU approval before they go to national parliaments, will have to sign up to strict new rules on the size of debts and deficits and will be sued for any breach in the European Court of Justice.

Plot: German Chancellor Angela Merkel, left, and French President Nicolas Sarkozy, right, are plotting a new pact on economic union without consulting Britain or other countries outside of the EU

The Franco-German plan will effectively mean an end to national sovereignty over budgets for countries remaining in the euro.

Source said it had become clear to Mrs Merkel and Mr Sarkozy in recent weeks that it appears impossible to get all 27 EU countries on board for the plan.

It could take years to secure the necessary changes, while a rapid loss of market faith in Italy, Spain and even France suggests urgent measures are required within weeks.

EU sources said French and German civil servants have been exploring other ways of achieving the goal, either via an agreement among just the Eurozone countries.

Alternatively, they could strike a separate agreement outside the EU treaty that could involve a core of around just eight to ten Eurozone countries, officials say.

The move will infuriate British Eurosceptics, who have been urging David Cameron to insist on a repatriation of powers for the UK from Brussels in exchange for agreeing to let the Eurozone countries move towards fiscal and political union.

In a sign of the deepening turmoil in the Eurozone, IMF officials were quoted by the Italian newspaper La Stampa as saying a bailout would be needed to give the country a window of 12 to 18 months to implement urgent budget cuts and growth-boosting reforms.

The IMF would guarantee rates of 4.0 per cent or 5.0 perc ent on the loan -- far better than the borrowing costs on commercial debt markets, where the rate on two-year and five-year Italian government bonds has risen above 7.0 per cent.

The size of the loan would make it difficult for the IMF to use its current resources so different options are being explored, including possible joint action with the European Central Bank in which the IMF would act as guarantor. As a major shareholder in the IMF, billions of pounds of British cash would be put on the line under any deal, though it is not clear how much.

Italy’s vast £1.6 trillion national debt and its low growth rate have caused deepening alarm on the international markets in recent weeks, and even a Brussels-inspired ‘coup’ which saw Silvio Berlusconi removed and a government without a single elected politician in it installed failed to stop the rot.

Mr Osborne confirmed yesterday that Britain is preparing for a break-up of the Eurozone that would have cataclysmic effects for the British economy.

‘Well, of course countries like Germany and France have now openly asked the question whether countries like Greece can stay in the Euro. It is a very, very difficult and dangerous situation,’ the Chancellor said.

‘It is having a hugely chilling effect on the British economy at the moment. We have contingency plans for all situations. We have obviously stepped up that contingency planning in recent months. You would expect us to do that as the British government. But that doesn’t mean we are predicting any particular outcome.

‘We’re just ready for whatever the world, whatever the Eurozone throws at us. Adisorderly collapse of the Eurozone would have a massive impact on the UK. I mean, for example, one in seven pounds we export goes to Ireland, Italy, Portugal, Spain and Greece - just those countries.
‘So in other words, it’s a very important part of our economic strategy that we get the Eurozone moving as well.’

Source

A long term European political vision is needed to overcome the crisis

In the midst of the Financial Crisis of the Eurozone, the COMECE Bishops call on the European Union and its citizens to refrain from blaming one another; instead we must assume co-responsibility for finding solutions. They call on European leaders to adopt a long-term perspective to overcome the crisis. These are the main messages of the Autumn Plenary Assembly of COMECE, which took place on 26 to 28 October 2011 in Brussels and was dedicated to “the Financial crisis and future of European integration”.

The Bishops heard several specialists on this complex issue. Mr Peter Wagner, from the European Commission, presented the mission of the newly created Task Force for Greece. Prof. Dr. Lans Bovenberg, Tilburg University, Dr. Emmanuel van der Mensbrugghe, Director of the IMF Office in Europe and M. Jean-Pierre Jouyet, President of the French Financial Markets Authority presented their view on the economic and political causes of the debt crisis in Europe.

The causes of the crisis are structural and they are mainly rooted in short-term and very often electorally motivated political choices over recent decades. These choices often reflect individual behaviour of credit-financed consumerism. In the current situation, a culture of blame will lead nowhere. Europeans should stay united and exercise solidarity in order to overcome the present crisis. Crisis doesn’t necessarily mean decline: it can be made an opportunity for renewal.

The President of the European Council, Herman Van Rompuy, presented to the COMECE Bishops the outcome of the European Summit, which began on 26 October. The Bishops welcomed this result, as a response to the immediate crisis. Knowing, however, that technical and short-term solutions will be insufficient, they underlined the need for developing a long term vision concerning the European Institutions and the social and economic model they promote. The interests of the younger generation in particular, who risks being the major victims of the crisis, need to be better taken into account.

The Bishops are convinced that the Church can be a force for cohesion and hope within European societies, which are threatened by populism and division. The main roots of the present Crisis are moral and spiritual. Moral relativism is changing the sense of personal and collective responsibility and the sense of the common good in the long perspective. Through their social services, Churches help the weakest in our societies; they promote human dignity and the common good against individualistic tendencies.

COMECE Bishops also adopted a declaration on Social Market Economy, a term which has been inserted into the Treaty of the European Union with the Lisbon Treaty. The text, “A European Community of Solidarity and Responsibility”, will be published in several languages in early January 2012.

---

For further information, please contact Johanna Touzel, COMECE Press Officer

Johanna.touzel@comece.eu

Source

European leaders reach deal on bank recapitalisation

WORLD WEDNESDAY, OCTOBER 26, 2011

By KARL STAGNO-NAVARRA

Prime Minister Lawrence Gonzi arriving for tonights meeting in Brussels

Scheme requires big banks to have 9% of capital by June as a one-off stabilisation measure.

European Union leaders have reached agreement on a plan to recapitalise Europe's biggest banks, in a bid to contain the effects of any further shocks in the eurozone.

The plan entails that big European banks will be required to have “9% of the highest quality capital” by June 2012, measured against assets, EU President Herman Von Rompuy said, adding that the banks should raise capital from the private-sector where possible.

However, where that proves impossible, member states will be obliged to provide capital in exchange for equity.

The eurozone's rescue fund, now known to be the European Financial Stability Facility (EFSF), could be used as a last resort.

In a statement issued by EU leaders at the end of their meeting, it was said that guarantees were needed for banks' liabilities to ensure that they could obtain medium-term funding.

They have asked the European Commission to work with the European Banking Authority, the European Investment Bank and the European Central Bank to explore options for a co-ordinated EU approach.

Polish Prime Minister Donald Tusk, who currently heads the EU’s rotating presidency, said that the plan was adopted “after a short, heated debate” among the 27 leaders, before the eurozone leaders began their own meeting.

“An emotional element during the debate was the fact that this is not a permanent element,” Tusk said, referring to the “exceptional circumstances” that had made such a move necessary. “This will not be a permanent solution for the future.”

Although neither Tusk nor Van Rompuy gave a figure for therecapitalisation needs of EU banks, the total is expected to be around €109 billion.

Regarding the prospects for a comprehensive crisis response beingfinalised by eurozone leaders tonight, Tusk said: “I think we are very close to a full political agreement. However, there are some important details that might require some more debate. We need to be patient.”

But Tusk also stressed that the bank recapitalisation plan was part of the overall crisis response. “The recapitalisation of banks will work only when the euro area approves other elements that are currently being debated,” he said. “The bank recapitalisation without the remaining elements, without the firewall, wouldn't have any chance of success.”

Tusk said that Italian Prime Minister Silvio Berlusconi , had submitted a letter to the group to inform them of his government's austerity measures. Tusk said that the letter included a “detailed work plan” from the government and was “very well received”.

British Prime Minister David Cameron said: “We've made good progress on the bank recapitalisation, it wasn't watered down. But it will only go ahead when the other parts of the full package go ahead and further progress needs to be made tonight.”

Cameron was one of the leaders of non-eurozone countries who had insisted on a full Council meeting before the summit of eurozoneleaders.

Leaders of the 17 eurozone countries – including Maltese Prime Minister Lawrence Gonzi - are meanwhile holding a separate meeting tonight to try to agree ways to increase the firepower of the eurozone rescue fund and cut the size of Greece's debt as part of a package of measures to tackle the eurozone crisis.

Source

Global Financial Regulation: A Goal Many Espouse But Can It Be Done?

Police arrest an "Occupy Wall Street" protester near Zuccotti Park in New York City on October 14.

October 23, 2011

By Ron Synovitz

Calls for a more coordinated system of international financial regulation have been growing as the Occupy Wall Street protests in New York inspire similar demonstrations around the world.

Since activists in September began the Occupy Wall Street movement in New York's financial district, protesters have been calling attention to unfulfilled promises for tighter regulation of the financial institutions that they blame for the global economic crisis.

Indeed, many reforms pledged by politicians as the global economic crisis unfolded in 2008 have been blocked or delayed -- leaving only modest changes to the way the world's financial system is regulated.

Frustration with the authorities dragging their heels on reform has now made itself felt on the streets of New York and other U.S. cities.

"It's clear that people feel like the politicians have not been prioritizing the needs of working people," says Mark Bray, a spokesman for the Occupy Wall Street protest movement.

"Even if the political parties change, when the economic crash occurred and the Wall Street bankers speculated and gambled away people's lives, nevertheless, working people are the ones who suffer and the financial institutions are the ones that continue with business as usual."

Giving Voice To Frustrations

U.S. President Barack Obama recently claimed the Occupy Wall Street movement gives voice to broader frustrations about how financial sector lobbyists work to prevent more stringent regulation, despite the fact that the United States has just endured "the biggest financial crisis since the Great Depression."

"And yet you're still seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on abusive practices that got us into this problem in the first place," the president said.

On a global level, critics argue that international regulators have failed to keep pace with the globalization of financial markets. But calls for stronger global regulation raise the question of who should serve as the police and courts for international financial markets.

Masked protesters warm themselves at a fire after setting up camp in front of the European Central Bank in Frankfurt.

​​Many economists say the problem is not a lack of global institutions. Rather, they argue, there is neither a hierarchy between existing regulators nor a central power that has the authority to force urgent action.

In other words, when it comes to regulating global financial markets, no one is really in charge of anyone else -- not in the way, for example, that the World Trade Organization has the authority to regulate and enforce international law in trade disputes.

Indeed, the International Monetary Fund and the World Bank have oversight roles that allow them to monitor international finance. But neither is a financial regulator with the powers to do things like set minimum capital requirements for banks or draw up international accounting standards.

Compliance With Standards Is Voluntary

Such regulations are drawn up by the Basel Committee on Banking Supervision, which brings together central bankers from more than two dozen countries. But the Basel Committee works on the basis of consensus among its members. Compliance with its standards is voluntary.

The International Organization of Securities Commissions (IOSCO), which groups together financial regulators from more than 100 different countries, also works on the basis of consensus and voluntary compliance by its members.

Nobel Prize-wnning economist Joseph Stiglitz believes banking lobbyists are slowing down reform.

​​In 2009, the G20 established the Financial Stability Board to promote international financial stability and transparency. It brings together all of the G20 finance ministries and central bankers as well as international financial bodies.

But the IOSCO and the Basel Committee have been reluctant to take instructions from the Financial Stability Board or its predecessor, the Financial Stability Forum.

Even within regional economic groups, such as the eurozone, national governments have hesitated to surrender their sovereignty to a stronger central state in Brussels when it comes to fiscal federalism in Europe.

Lack Of Interaction

This is still the case despite the sovereign debt crisis in Europe and the pressures the euro currency has been under.

"What is lacking is really a more fundamental discussion about how economic institutions, economic policies and political institutions interact in Europe -- and how we can move this interaction forward," says Anke Hassel, a professor of public policy at the Hertie School of Governance in Berlin.

"Obviously, the European economy is at a crisis point and at a turning point. And we need new ways of dealing with that."

Eddy Wymeersch, the former chairman of the Committee of European Securities Regulators, suggests that the global economic crisis has brought the world further from establishing some form of global financial authority.

The 2001 Nobel laureate for economics -- former World Bank chief economist Joseph Stiglitz -- believes that banking industry lobbyists have been responsible for slowing down the drive toward regulatory reform.

Underlying Problems

"There was a slight attempt [at reforming financial sector regulation] after 2008 but it was beaten back by the banks," he says. "A little bit happened, but for the most part it was beaten back. And we haven't dealt with the underlying problems."

"And in fact, some of those underlying problems have gotten worse -- [banks that are] too big to fail, inequality, all those things have actually been exacerbated by the crisis itself."


Britain is a case in point when it comes to financial sector lobbyists and national interests conflicting with calls for global regulatory reforms.

At the start of the global economic crisis, the British government initially said its system of financial regulation was no longer suitable and needed to be replaced with a framework to promote "responsible and sustainable banking."

In a bid to bring banks back toward more traditional banking practices -- rather than acting as risk-taking hedge funds -- the British government proposed regulatory powers that would discourage risky bank lending.

The British Treasury also argued that banks which pose a bigger risk to the financial system as a whole -- either because of their size or inter-connections with other banks -- should face greater regulation.

But in the end, many of the proposed reforms stalled amid arguments from figures within the financial sector that tighter regulation could cost Britain its role as a financial hub for Europe.

EU proposals for tighter hedge fund regulation were resisted by London as "anti-competitive."

The British government concluded that regulation must be agreed at a global level so that firms don't simply migrate to countries with less stringent regulations.

Source

Despite Crisis, Do Countries Benefit From Eurozone?

http://www.npr.org/2011/09/15/140490521/does-the-eurzone-still-make-sense

September 15, 2011

Listen to the Story

Morning Edition

[4 min 3 sec] 

September 15, 2011

For the last couple of years there has been nothing but frustration for the European countries that use the euro. Josef Joffe, editor of the German newspaper Die Zeit, tells David Greene that debt-ridden countries like Greece 'can't be on the dole forever."

Copyright © 2011 National Public Radio®. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

DAVID GREENE, host: To talk more about the eurozone crisis, we called Josef Joffe, who's editor of the German newspaper Die Zeit, and we reached him at his office in Hamburg. Josef, thank you for joining us

JOSEF JOFFE: It's a pleasure.

GREENE: So I think it's safe to say over the last two years we've heard nothing but frustration and bad news coming out of Europe when it comes to talking about the eurozone currency. Can you just step back and remind us, what was the original goal of this common currency? What were the benefits that people were expecting?

JOFFE: The original goal was for Germany, whose currency was an enormous re-evaluation pressure, and so the idea was to spread the pressure, so to speak, and submerge the deutschmark in the euro. For Europe as a whole, it was obviously, you know, it's like think about, you know, 50 states with 50 currencies. And so there was this practicality, and finally it was a kind of a philosophical thing - with a common currency we were going, you know, a long way towards eventually a more perfect union or, you know, United States of Europe.

GREENE: And was that the hope and dream of supporters of the eurozone, to end up with the United States of Europe?

JOFFE: Well, certainly not. We're still in the EU. You know, we are 27 countries in the EU and 17 countries in the eurozone. That just tells you that almost half didn't even want to get into the euro, such as a Britain, for instance, or the Scandinavians. And the Brits are now quite happy not to be in the euro.

GREENE: And you did sort of present in your writing this week of this no man's land in the middle, that the eurozone will have to make a choice whether to sort of separate again or all come together as one if it's going to succeed.

JOFFE: That's the inherent logic. As any economist will tell you, you can't have monetary union without at least a kind of fiscal union. Like the United States, where, you know, taxes and expenditures are set by a common government. That was the birth defect of this construction, where the chickens are now coming home to roost.

GREENE: And one of the other things that I read from you this week was the idea that culture matters, and what we're seeing now is there's a huge cultural gap that is being exposed by these problems.

JOFFE: Yeah, you know, you call it, you know, the northern Protestants versus Catholic Club Med. And these two camps have always obeyed different social contracts. The Germans in particular, and the Dutch, we're pretty tight-fisted and try to maintain fiscal discipline, and the Club Med countries, from Spain to Greece, went on living like they had before, which was a happy-go-lucky, spend more than you take in. And the nice thing was that, you know, why scrounge if you can borrow, because the euro - and that is kind of a perverse effect of the euro - made money much cheaper for the Greeks and Italians, and so now they could borrow at more like German rates. And that, of course, accelerated the march into doom, where we are now.

GREENE: There's the idea out there that more productive northern European economies, like Germany, might split off on their own and form a new bloc, which would end the eurozone as we know it.

JOFFE: The fear is a twin fear. One, you know, once you start unraveling this, then where does the unraveling stop? And then there's a more tangible kind of thing - if Greece goes and defaults and the banks start tottering, where will that end? It will just tear one huge hole into the European and thus the global financial system.

GREENE: Is anyone out there thinking twice about this grand experiment and saying we've got to do something else?

JOFFE: Nobody would attack Europe as such, but the carping is targeted at something else, something below that. It is we can't bail out Greece anymore. We can't just stop this. We can't put countries on the dole forever. That is where the European debate or the thrust of the critics is to be found now.

GREENE: Josef Joffe is editor of the German newspaper Die Zeit and he joined us from his office in Hamburg. Josef, thank you for talking to us.

JOFFE: It was a pleasure.

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Sarkzoy, Merkel invite Van Rompuy to head eurozone

EU president Herman Van Rompuy has been asked to chair a body of eurozone leaders (AFP/File, Georges Gobet)


(AFP) – 16 hours ago

PARIS — France's President Nicolas Sarkozy and German Chancellor Angela Merkel sent a joint letter Wednesday to EU president Herman Van Rompuy inviting him to chair a body of eurozone leaders.

The pair said they hope to strengthen coordinated financial planning within the 17-nation single currency bloc in the face of the current sovereign debt crisis and want the former Belgian prime minister on board.

"The euro is the foundation of our economic success and the symbol of the political unification of our continent," the zone's two most powerful leaders said, in a joint statement drawn up after they held talks on Tuesday.

"France and Germany propose to reinforce once more the governance of the eurozone within the framework of existing treaties," they wrote, proposing that eurozone leaders elect a president for a two-and-a-half year mandate.

"We have expressed our hope that you could assume this role," they added.

Eurozone finance ministers already meet regularly in what is known as the Eurogroup, and which is chaired by Luxembourg's Prime Minister Jean-Claude Juncker.

European financial markets and the euro exchange rate have been gripped by uncertainty as one eurozone member after another has begun to struggle to cope with mounting government debt, threatening the unification project.

Markets had looked to Merkel and Sarkozy's Paris summit for reassurance, and many observers had hoped that they would endorse the idea of issuing a common "eurobond" to pool member states' debts.

But the pair stopped short of a measure that would have angered German taxpayers by giving them a greater share of the burden of supporting weaker economies like Greece, calling instead for tougher fiscal discipline.

European Commission President Jose Manuel Barroso nevertheless called Tuesday's meeting an "important political contribution by the leaders of the two largest euro area economies."


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Cramer's 'Mad Money' Recap: Europe Trumps U.S. (Final)

By Scott Rutt 08/16/11 - 07:25 PM EDT

Search Jim Cramer's Mad Money trading recommendations using our exclusive Mad Money Stock Screener and watch Jim Cramer's Mad Money Post Game video exclusively on TheStreet.com.

NEW YORK (TheStreet) -- "It's time to accept the new reality," Jim Cramer said on his "Mad Money" TV show Tuesday.

Cramer said that great news from U.S. is no longer powerful enough to trump news from Europe, but that doesn't mean there aren't opportunities in the market.

Cramer said simply that the U.S. just doesn't matter as much as it used to. In today's case, it was the German industrial production numbers, which came in weaker than expected, that were able to outdo the fairly robust production numbers here at home. That news was also strong enough to outshine the great results posted from Wal-Mart (WMT_) and Home Depot (HD_).

The U.S. may be 310 million people strong, said Cramer, but that's nothing compared to the woes of more than 500 million people in Europe. America may be a great nation, but it no longer has the strong balance sheet that it once had, and its clout in the financial world is waning.

So does that mean that U.S. stocks are totally held captive to Europe's influence on the S&P 500 futures? Cramer said absolutely not. He said that when the news of the day pull down the entire market, investors need to look for opportunities like Perrigo (PRGO_), which traded down eight points in early trading only to rally back nine points by the end of the day.

In addition to Wal-Mart and Home Depot, Cramer said investors can also consider the safety stocks, those that do well in a slowdown, stocks like McDonald's (MCD_) and Abbott Labs (ABT_).

"European production numbers may be more important than our own," admitted Cramer, but that doesn't mean that opportunities in U.S. stocks aren't still out there to be found. "Find the stocks that get brought down but shouldn't be," he said.

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The Divided States of Europe

By Marko Papic | June 28, 2011

Europe continues to be engulfed by economic crisis. The global focus returns to Athens on June 28 as Greek parliamentarians debate austerity measures imposed on them by eurozone partners. If the Greeks vote down these measures, Athens will not receive its second bailout, which could create an even worse crisis in Europe and the world.

It is important to understand that the crisis is not fundamentally about Greece or even about the indebtedness of the entire currency bloc. After all, Greece represents only 2.5 percent of the eurozone’s gross domestic product (GDP), and the bloc’s fiscal numbers are not that bad when looked at in the aggregate. Its overall deficit and debt figures are in a better shape than those of the United States — the U.S. budget deficit stood at 10.6 percent of GDP in 2010, compared to 6.4 percent for the European Union — yet the focus continues to be on Europe. Read more »

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