Does the Euro Have a Future?
Most of the Euro-participating countries are suddenly recognizing the need to take ownership of monetary policies themselves.
Their national banking systems are about to collapse.
They believe that they can not afford waiting the other European member states to come together and agree on helping them in those national rescue attempts.
When politicians in the US need days or weeks, then politicians in Europe might take months deciding on proper actions to address the market turmoil.
The system which was created in good times, now faces its first stress test in bad times.
It does not only put only the European treaty under pressure, after its second attempt was rejected by Ireland.
It further more puts the decision for a combined, common, currency under a first real test.
And the signs so far are not to optimistic.
The problems in Europe are deepening: More and more countries in the European Union engage in nationalism vs.
a we are European thinking.
Examples are the UK, which can operate largely independent of the other European member states.
It has an agreed special status, and maintained this status even throughout the treaty discussions.
Those countries which belong to the new core European Union possess less of such a special status.
The UK's bailout of 'Nothern Rock' and HBOS are a few examples, which remind Europeans of European inequality.
Other examples are the Italian moves during the last months to ignore European regulations in the attempt to rescue the national airline Alitalia.
Germany's government has so far bailed out many banking institutions with direct governmental subsidies.
Germany's finance minister Peer Steinbrueck stroke "good luck" as German Landesbanken and IKB were mostly governmentally backed institutions.
That allowed him to utilize an ending but still effective regulation for the banking system.
It allowed Germany's government to bail out those banks without facing competition law conflicts with Europe.
The website of the European Commission states clearly: "The European contracts pronounces the general prohibition of State aid".
But reading through this most important paragraph, the latest developments shown by European memember states are worrisome.
A few European members have been faced with the need to take action without consulting the other Euro participants, beforehand.
During the last weeks we saw governments giving guarantees to the banking system and distorting competition in the European markets.
Off course all of it has been performed under the aspect of keeping the system alive: 1.
Luxembourg, Belgium and the Netherlands bailed out Fortis bank with EUR11.
6 billion.
2.
Germany bailed out Hypo Real Estate with an estimated guarantee of EUR35 billion of which the private banking sector in Germany sponsors a small amount, estimated EUR5.
5 billion.
As of today, the government has extended its exposure to EUR55 billion and recently HRE pulled another EUR15 billion.
3.
Ireland gave an explicit guarantee to depositors of six selected banks.
The guarantee has a value of EUR400 billion is twice the amount of Ireland's budget.
This has large implications for the Euro and the Euro-zone.
Especially the guarantee provided by Ireland to selected banks signals a distortion in the financial markets.
The message was the following: "Any depositor in Europe should take his money and move it to Ireland as it was the only place in Europe where deposits were backed by the government".
It became clear that the Europeans had to pay for that move.
All other European countries were forced to follow the Irish example.
This also reveals a key strength of Europe, which lays in the fact that it is easier to identify and implement procedures to cope with problems, by letting single European states act and then learn from this "case study".
However, Europeans will pay for this massive bail out with our tax-payers' money.
The easiest form of tax is inflation.
Nothing changes, besides prices.
Inflation is a great political tool and economists call it a "flat tax".
It does not require permission or changes to the common rules, it "just happens, if you let the markets work".
Off course, the combined bail outs will depress the Euro further, not now, but later.
Let us just look at how much much more money had been created by Ireland´s move.
The combined EUR446 billion additional Euros in the monetary system created by those bail outs mean something like 4.
87% increase in the money stock M3.
The remarkable fact here is that governments took over the job of the ECB to regulate the money amounts.
By just giving up any criteria for budgetary constrains and compliance, they ignore mostly all important facts laid out in the European Treaty and Stability pact.
Europe will sooner or later have to deal with this problem.
Let's see how European politicians and bankers will respond to it, when they will find some time between their fire fighting activities.
Ireland is a "smaller economy" and the bail out costs and its money creation during this process will be outpaced by larger economies, such as Germany and France.
We might anticipate that if this crisis continues, this might be just the beginning and if European governments continuing money creation.
If so, then the question has to be asked: "Why does Europe still need a European Central Bank if European state governments start to print money at their own discretion".
So far, European politicians failed to discuss and respond to the threats for the Euro currency system.
Given the fact that only a few countries in the Euro zone prefer low inflation, we might see rapid growth in money stock and inflation within the next months.
It will bring new and not anticipated challenges to a conglomerate of unequal countries sharing a common currency.
And it will raise the question: "will the Euro survive?"
Their national banking systems are about to collapse.
They believe that they can not afford waiting the other European member states to come together and agree on helping them in those national rescue attempts.
When politicians in the US need days or weeks, then politicians in Europe might take months deciding on proper actions to address the market turmoil.
The system which was created in good times, now faces its first stress test in bad times.
It does not only put only the European treaty under pressure, after its second attempt was rejected by Ireland.
It further more puts the decision for a combined, common, currency under a first real test.
And the signs so far are not to optimistic.
The problems in Europe are deepening: More and more countries in the European Union engage in nationalism vs.
a we are European thinking.
Examples are the UK, which can operate largely independent of the other European member states.
It has an agreed special status, and maintained this status even throughout the treaty discussions.
Those countries which belong to the new core European Union possess less of such a special status.
The UK's bailout of 'Nothern Rock' and HBOS are a few examples, which remind Europeans of European inequality.
Other examples are the Italian moves during the last months to ignore European regulations in the attempt to rescue the national airline Alitalia.
Germany's government has so far bailed out many banking institutions with direct governmental subsidies.
Germany's finance minister Peer Steinbrueck stroke "good luck" as German Landesbanken and IKB were mostly governmentally backed institutions.
That allowed him to utilize an ending but still effective regulation for the banking system.
It allowed Germany's government to bail out those banks without facing competition law conflicts with Europe.
The website of the European Commission states clearly: "The European contracts pronounces the general prohibition of State aid".
But reading through this most important paragraph, the latest developments shown by European memember states are worrisome.
A few European members have been faced with the need to take action without consulting the other Euro participants, beforehand.
During the last weeks we saw governments giving guarantees to the banking system and distorting competition in the European markets.
Off course all of it has been performed under the aspect of keeping the system alive: 1.
Luxembourg, Belgium and the Netherlands bailed out Fortis bank with EUR11.
6 billion.
2.
Germany bailed out Hypo Real Estate with an estimated guarantee of EUR35 billion of which the private banking sector in Germany sponsors a small amount, estimated EUR5.
5 billion.
As of today, the government has extended its exposure to EUR55 billion and recently HRE pulled another EUR15 billion.
3.
Ireland gave an explicit guarantee to depositors of six selected banks.
The guarantee has a value of EUR400 billion is twice the amount of Ireland's budget.
This has large implications for the Euro and the Euro-zone.
Especially the guarantee provided by Ireland to selected banks signals a distortion in the financial markets.
The message was the following: "Any depositor in Europe should take his money and move it to Ireland as it was the only place in Europe where deposits were backed by the government".
It became clear that the Europeans had to pay for that move.
All other European countries were forced to follow the Irish example.
This also reveals a key strength of Europe, which lays in the fact that it is easier to identify and implement procedures to cope with problems, by letting single European states act and then learn from this "case study".
However, Europeans will pay for this massive bail out with our tax-payers' money.
The easiest form of tax is inflation.
Nothing changes, besides prices.
Inflation is a great political tool and economists call it a "flat tax".
It does not require permission or changes to the common rules, it "just happens, if you let the markets work".
Off course, the combined bail outs will depress the Euro further, not now, but later.
Let us just look at how much much more money had been created by Ireland´s move.
The combined EUR446 billion additional Euros in the monetary system created by those bail outs mean something like 4.
87% increase in the money stock M3.
The remarkable fact here is that governments took over the job of the ECB to regulate the money amounts.
By just giving up any criteria for budgetary constrains and compliance, they ignore mostly all important facts laid out in the European Treaty and Stability pact.
Europe will sooner or later have to deal with this problem.
Let's see how European politicians and bankers will respond to it, when they will find some time between their fire fighting activities.
Ireland is a "smaller economy" and the bail out costs and its money creation during this process will be outpaced by larger economies, such as Germany and France.
We might anticipate that if this crisis continues, this might be just the beginning and if European governments continuing money creation.
If so, then the question has to be asked: "Why does Europe still need a European Central Bank if European state governments start to print money at their own discretion".
So far, European politicians failed to discuss and respond to the threats for the Euro currency system.
Given the fact that only a few countries in the Euro zone prefer low inflation, we might see rapid growth in money stock and inflation within the next months.
It will bring new and not anticipated challenges to a conglomerate of unequal countries sharing a common currency.
And it will raise the question: "will the Euro survive?"