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[Sir Tigger KC]

Interesting reading over the cornflakes Rod!! 

Indeed, it might come to pass that defaulting economies start to grow within months of default, but I believe it will take years to regain the levels of GDP enjoyed pre-default speculation.....

As you rightly pointed out Iceland is growing again and it seems that they have quietly got on with it.  However, this growth has not come without pain! They implemented a severe Merkal style austerity programme, imposed steep tax increases, GDP fell 5.5% in the first 6 months of 2010, and interest rates were at 15.5% in an attempt to curb inflation caused by the massive drop in the value of the Icelandic Kroner!! 

Interestingly, in an attempt to restore confidence and credibility in Iceland, they are now in the process of rejoining the EU.... 

During the Icelandic banking crisis, the Isle of Man government paid out roughly half of their reserves in deposit insurance (7.5% of the island's GDP), so if the Spanish banks fail the shockwaves will be felt globally and that won't be pretty!!! 

I'm no fan of the EU and feel that successive British governments have sold us down the river over the years, but as Varche has pointed out we really should be careful what we wish for!!   

I'm starting to come round to the idea that the best way forward is for the Euro-zone to become a political, fiscal and monetary union, Yes The United States of Europe!! Then the ECB can start issuing Euro-bonds and send the money where it is needed, as with any country....    As long as Britain stays out that is!! 

[Dishevelled Den]

Interesting reading over the cornflakes Rod!! 

Indeed, it might come to pass that defaulting economies start to grow within months of default, but I believe it will take years to regain the levels of GDP enjoyed pre-default speculation.....

As you rightly pointed out Iceland is growing again and it seems that they have quietly got on with it.  However, this growth has not come without pain! They implemented a severe Merkal style austerity programme, imposed steep tax increases, GDP fell 5.5% in the first 6 months of 2010, and interest rates were at 15.5% in an attempt to curb inflation caused by the massive drop in the value of the Icelandic Kroner!! 

Interestingly, in an attempt to restore confidence and credibility in Iceland, they are now in the process of rejoining the EU.... 

During the Icelandic banking crisis, the Isle of Man government paid out roughly half of their reserves in deposit insurance (7.5% of the island's GDP), so if the Spanish banks fail the shockwaves will be felt globally and that won't be pretty!!! 

I'm no fan of the EU and feel that successive British governments have sold us down the river over the years, but as Varche has pointed out we really should be careful what we wish for!!   

I'm starting to come round to the idea that the best way forward is for the Euro-zone to become a political, fiscal and monetary union, Yes The United States of Europe!! Then the ECB can start issuing Euro-bonds and send the money where it is needed, as with any country....    As long as Britain stays out that is!! 

we really should be careful what we wish for

Sage words indeed Tigg as I don't believe the political structures within this country have the depth or indeed the capability to guide a course through the inevitable chaos that would develop in the aftermath.

I will go further and say that, in the event of such a breakdown, there is the very real risk of public disorder developing not only within the EU Zone, but on the streets of this country - with the resultant need for the forces of 'law and order' to make a choice on whether they follow the anticipated orders given by their superiors (at the behest of their political masters) to crack down on public demonstrations, or take an entirely different approach altogether.

People should not underestimate the seriousness of this developing situation.

I'm starting to come round to the idea that the best way forward is for the Euro-zone to become a political, fiscal and monetary union, Yes The United States of Europe!!

That’s the only way it was ever going to work in my view Tigg – but even then, it would have been (and still will be) an almost impossible feat to make work in the way envisaged. 

How any centralised power can meld disparate peoples into an amalgam where every one has access to the same opportunities, the same rights based on common law and imbued with the same vision of their future development puzzles me to say the least.

It's bordering on being a confidence trick that will only be made believable by the constant brainwashing of the unfortunate people it is played upon and the ruthless treatment of those who realise what is happening and dare reveal their opposition to it.

The individual nations of the EU as it’s presently constituted matter little in the strategic development of a unified continent  - the real power lies with those in Brussels and always has.

 

[Rods2]

Political and fiscal union won't work as the financial transfers from Germany to the PIIGS are estimated at at least €200bn per year and Germany can't afford that.

The fiscal transfers required in the UK to Scotland, Wales and Northern Ireland cause a lot of resentment from the English, and this is a fraction of what will be required of Germany to the rest of the Eurozone.

Germany might be the richest country in Europe but is far from healthy economically where they are a socialist state who have borrowed heavily in the past, their dept to GDP level is 82%. They also have large pay as you go liabilities, with a Public Sector pension liability of over €4,000bn. Their banking sector is currently weak with much exposure to other EU countries and their banks.

Money flows in the EU are handled by a system called TARGET2, so where there is capital flight from Greece and Spanish and the money is deposited mainly in Switzerland and  Germany, then Germany lends this money back to Spain so they do not have liquidity crisis. In February Germany had lent over €600bn to other central banks. The rate of growth is increasing as more and more capital is leaving Greece, Spain and Portugal, In February it was increasing at about €70bn a month, it is now estimated at €100bn a month. If this continues by the end of this year it will be between €1tn and €2tn. When the Eurozone music stops if the PIIGS central banks can't or won't pay back this money, you can imagine the effect it will have on Germany's economy.

Germany is not a indebted as the UK, but there are potentially ruinous things on the horizon.

To me an analogy on whether to go back to individual currencies quickly or slowly is: There is a very sick patient, the doctor comes in and says we can perform a major operation, you will be very, very ill and weak for between 2 to 9 months before you start recovering. The alternative is that  we can treat you will a regular course of drugs for the next 10 years, you will be weak and ill but alive, you will get worse and worse during this time and at some point in the 10 years things will get so bad you will have to have the major operation, but because you are so much weaker at this point, recovery will take much much longer.

All of the EU politician are aiming for the latter, for re-election, career, expenses and pension purposes. I personally can't see any other scenarios.

Matt in the DT, summed up the EU banking fund suggestion perfectly:

http://www.telegraph.co.uk/news/matt/

[Sir Tigger KC]

In all countries large and small, rich areas subsidise the poorer regions. That's a fact and you are right that it does breed resentment.  However in the case of the Eurozone, if they became a full political, fiscal and monetary union ie The United States of Europe, then the centre of power would shift from Berlin and the Bundesbank to Brussels and the ECB.  All national taxes would be standardised and paid to the Euro-Treasury in Brussels and all monies raised on the international money markets would be done by the ECB via the sale of Eurobonds, the debt from across the USE would be pooled and money would be channeled from the Euro-Treasury in Brussels to whichever region needs it. Pretty much as happens in any nation state.

This however is complete and utter pie in the sky and will never happen!! 

What does need to happen is decisive action, either complete union or a complete break up!! This tinkering and fiddling while Rome burns is hugely damaging to us all, but none of the politicians is willing to grasp the nettle.....   

On a lighter note there was a debate on Radio 4 yesterday on whether the term 'Shit-Storm' is an acceptable phrase....    Who ever said the BBC is dumbing down??