It doesn’t get any more ominous than this.
This would insure an orderly default of the entire currency union.
Which is already in progress.
Germany is concerned that the Greek situation resulted in larger deficits for the other members, and wants something in place so defaults don’t result in this type of fiscal expansion for the rescuers.
If they are in fact looking seriously at this new proposal for a default friendly institutional structure its all coming to an end in a deflationary debt implosion, accelerated by their desire for the pro cyclical fiscal policy of smaller national government deficits.
The next event should be the bank runs that force a shut down of the payments system.
It’s a human tragedy that doesn’t have to happen. I’ve proposed two obvious and constructive fixes that are not even being considered. It’s almost like ‘they’ want this to happen, but I now have no idea who ‘they’ are or what ‘their’ motives are.
As always, feel free to distribute.
Merkel’s Coalition Steps Up Calls for EU ‘Orderly Insolvencies’
By Tony Czuczka
May 4 (Bloomberg) — German Chancellor Angela Merkel’s coalition stepped up calls for allowing the “orderly” default of euro-region member states to avoid any repeat of the Greek fiscal crisis.
The parliamentary leaders of the three coalition parties agreed in Berlin today to put a resolution to parliament alongside the bill on Greek aid calling for the European Union to revise rules for the euro to put pressure on countries that run deficits.
Merkel said in an interview with ARD television late yesterday that it’s time to learn lessons from the Greek bailout and raised the option of “an orderly insolvency” as a way to make sure creditors participate in any future rescue.
“We want to move from crisis management to crisis prevention,” Birgit Homburger, the parliamentary head of Merkel’s Free Democratic coalition partner, told reporters in Berlin after the coalition leaders meeting. “We have to do everything we can to ensure we never get into such a situation again.”
Volker Kauder, the floor leader of Merkel’s Christian Democrats, said that the European Commission, the EU’s executive body, must be able to better examine the finances of member states to avert any rerun of what happened in Greece.
“We quite urgently need something for the members of European Monetary Union that we also didn’t have during the banking crisis two years ago,” Finance Minister Wolfgang Schaeuble told reporters yesterday. “Namely the possibility of a restructuring procedure in the event of looming insolvency that helps prevent systemic contagion risks.”
It’s almost like ‘they’ want this to happen, but I now have no idea who ‘they’ are or what ‘their’ motives are.
LOL! Never mind what i have been saying for years……
“Orderly insolvencies” sure sounds like an oxymoron to me.
That “orderly” thingie sure does inspire confidence. “Orderly,” you know, like GM, Chrysler, Bear and Lehman.
One of the big problems here—and in the global financial crisis in general—is that the solutions lie in the hands of governments, but it is government that is viewed with increasing contempt and lack of trust. And for good reason!! Moral hazard abounds! The greed of men, and the complicity of their accomplices in government, have created a global middle class that is poor, getting poorer, and really P.O.’ed. It’s akin to a man having a terrible YET TREATABLE illness: all he has to do is go to the doctor and get a little penicillin. But the man mistrust doctors. He hates doctors! And so he dies a horrible death, defending to the end his right to hate the doctors.
Actually, it’s even worse: the doctors have penicillin in their bag, but they were taught in medical school that it’s never to be used. Instead, they were taught that bleeding the patient works for every disease…
“The next event should be the bank runs that force a shut down of the payments system.”
If people start withdrawing money from the banks, the ECB will provide the necessary liquidity (lender of last resort is the reason why any CB exists, no?). Why would the payment system shut down?
only to the limit of available collateral.
they can’t yet lend unsecured
a run will find their limits.
The can’t lend unsecured? The Parthenon is worth a lot, isn’t it?
{grin, I think}
All deposits are backed by loans and the quality of Greek banks’ loans is not in question, is it?
The only problematic asset is Greek gov’t debt and the ECB will accept that regardless of credit rating:
http://www.marketwatch.com/story/ecb-suspends-rating-threshold-for-greek-debt-2010-05-03-3400
Why would the ECB need to lend unsecured?
or buy some of their islands?
Good point Warren, Turkey isn’t part of the EU.
http://en.wikipedia.org/wiki/Aegean_dispute
Warren,
“I’ve proposed two obvious and constructive fixes that are not even being considered. ”
Could you remind us what posts exactly. This is for distribution purposes.
Thanks.
http://moslereconomics.com/2010/05/03/greece-can-go-it-alone/
http://moslereconomics.com/2010/04/30/its-not-too-late-for-greece/
http://moslereconomics.com/2010/04/16/upped-my-eurozone-proposal-to-20-of-gdp/
Warren, many thanks!
“I’ve proposed two obvious and constructive fixes that are not even being considered. ”
I guess this one is still relevant as well :
http://moslereconomics.com/2009/02/17/re-proposals-for-the-eurozone-2/
yes, forgot about that one. it was needed to restore demand/employment and prevent the possibility of bank runs.
it was expanded when the problem got worse