Category Archives: Euro

Not the Right

It appears that political cipher Emmanuel Macron is on his way to beating Marine Le Pen. While a Le Pen victory would have been a useful poke in the eye to assorted French and Euro elites, that poke would have come at a price. Namely Le Pen’s 50’s style dirigiste economic policies and, frankly, the wrong sort of nationalism.

France faces the necessity of untangling fifty years of statist economics. It also faces having to deal with 5 to 10 million unassimilated Muslims who are largely outside French society. And it faces waves of “refugees” pushing in from the Middle East and Africa. M. Le Pen’s economic positions would have simply re-enforced the anti-competitive labour, tax and pension laws which have hollowed out the French economy. And, while she was willing to talk a tough game on terrorism, her brand was so toxic that actually dealing with the combined Muslim and refugee crisis would likely be stillborn in a bureaucracy terrified of being associated with that brand.

I don’t hold out much hope for Macron. He seems stuck in the rut of claiming that Islamic terrorism has nothing to do with Islam and the happy fantasy that people who have little to do with French society will, somehow, soak up enough terrior to leave North Africa behind and become “French”. While, at the same time, saying “French culture doesn’t exist in and of itself; there is no such thing as a single French culture. There is culture in France and it is diverse.” (link) (I use the full quote lest I be accused of taking Macron out of context.) This is multi-kulti at its best and is essentially meaningless as a defence of France as a European nation.

Unfortunately, that is about the best that can be expected at this stage of re-alignment in French politics. Macron, without a political party behind him, is likely to preside over a do nothing, status quo ante government. The French economy, France’s role in Europe, its position in the Euro, its “community” relations and its refugee problem are all likely to get worse. Systematic corruption, the extension of the “no-go zones” and “youth” riots will likely increase. Which, realistically, is pretty much the outcome I would have predicted if Le Pen had won.

People have a natural inclination towards the status quo until, somehow, that inclination collapses. That collapse can be triggered by a crisis or by the promise of something better. This French election occurred in the midst of a slow moving economic and social disaster but, realistically, there was no sharp “crisis”. And M. Le Pen offered nothing “better”; just something different. That was not enough.

France’s mainline parties were knocked out of the race as was the hard left: in a battle between the status quo and a ideologically incoherent, semi-charismatic, leader with the press and the elites strongly on the side of the status quo, it is not surprising that the French chose a President with very little ideological baggage.

Macron might surprise and turn out to be the right combination of flexible and tough. He might create a government of all talents and begin the task of rebuilding France. I certainly hope he turns out to be a good choice for France. But I am not optimistic.

For a nation to abruptly change course things sometimes have to get worse, much worse, before they get better. The status quo, (as Trump is finding out), is deeply resilient. Real change, change which actually looks to solve problems rather than manage them, comes when the status quo actually begins to collapse and real change is the only alternative. However, as Adam Smith observed, “Be assured young friend, that there is a great deal of ruin in a nation.”

Marine Le Pen wrapped herself in a populist mantle and suggested a return to pre-1968 France; that was not change, that was nostalgia. Le Pen was not of the Right, rather she seemed to want to substitute one status quo for another.

When and if France’s crisis comes nostalgia will not be a winning idea. Facing the future and deciding what that future means to France will require a radical, likely libertarian, re-allignment of French politics. Something which cannot be forced but will rather rise in answer to the challenge faced.

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Italy: 60/40

The exit polls on the Italian Constitutional Referendum are showing the Yes side of PM Matteo Renzi losing bigly. 60% No, 40% Yes.

Popular anger at everything from the Euro to unfettered African and Middle Eastern migration on to the perpetually sketchy Italian economy all came into the mix. However, having followed the campaign a bit, my sense is that this is a purely populist reaction against the perceived globalist elite. Renzi was appointed – not elected – to office a couple of years ago. Whatever his politics he was seen as a tool of a technocratic, Europhile elite and, as such, when the people had the opportunity to voice their displeasure they took it.

This does not finish the EU. It will take the election of M. LePen to accomplish that; but it does signal a large scale rejection of the centralizing impulse which drives the EU. I expect there will be a fair dose of commentary linking Brexit, Trump and the defiance of the Italians. I doubt that there was much of a link other than the growing realization that the current situation of mass migration, unbalanced budgets and growing governmental interference with people’s lives is unsustainable.

The Italians are having to deal with a wave of African and Middle Eastern migration which they do not want and cannot afford. Their government seems hell bent on spending money it does not have to rescue, feed and house these migrants. Elites, imbued with an internationalist, multicultural orthodoxy, can’t imagine why their citizens are looking askance at migrants who are better treated than the Italians themselves. Unwanted migration is not the only reason for anger but it is the most visible.

The divergence between elite and popular opinion on the question of migration is the fulcrum of anger which is grinding away the pretensions of elite opinion. “Italy for the Italians!” can no longer be dismissed as irrelevant racist cant. Rather, it will begin to inform the actions of any government which hopes to rule Italy.

Today’s Italian vote may well signal the beginning of serious Italian nationalism.

As a general rule elites and Europhiles decry nationalism because they are convinced that that nationalism will set European state against European state a la WWI and II. I don’t think it will. Rather I think the nationalism will set the dominant European culture against the Muslim and/or African migrants/colonists flooding the borders. In the process that nationalism will start rooting out the now discredited ideology of multi-culturalism. In which case, today’s vote was a victory for Italy and the idea that Italian culture is worth defending.

The major loser in all of this is the EU. For the EU the idea of “Italian” was somehow to be submerged into the idea of “European”. The problem was that “European” was not very attractive as it gradually descended into unswerving support for unlimited migration, politically correct multi-culturalism and a deep belief that bureaucrats could make better decisions than Italians about how Italians lived and worked. 16 years of economic stagnation in the Euro strongly suggests that Brussels adds very little to the Italian mix.

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Round and Round the Mulberry Bush…

il_340x270.480855993_30qp (1)Pop goes the Weasel.

In olden times those down on their luck would pawn their coats or their tools on Monday and hope to redeem their pawn by Sunday when they needed to turn up in church properly attired.

Richard Fernandez, writing at PJ Media, talks about the musical chairs of the Greek Crisis:

Eventually the physical world starts to change to reflect the payments that have to be made to the players. Trade begins to contract, stores start to close and desperate individuals start to riot. In the naive days of the 20th century, when faith in angels and demons began to wane, it was fashionable to regard matter as primary. Wars were fought by burning actual buildings, killing physical people. But today we know that information has physical force. Computer programs, genetic instructions, memes — and financial data — are to all intents and purposes actual things, rather than airy nonsense.

Unfortunately we still live in a world governed by ancient 19th century Marxian ideas, where politicians regard information as infinitely corruptible, in a world where lies are not only common, but the stuff of power, the very sinews or privilege.  A financial crisis occurs when information goes so far out of whack with the physical world the music has to stop, and those without a chair must be booted off. belmont club

Greece is not a big deal. 2% of the EU economy. The entire place could sink into the Aegean and the world would be little worse off.

China is a bigger place. The factory of the world and its stock markets are in the process of collapse. A lot of companies which we have never heard of have shed 2.5 trillion dollars in market cap in the last three months. Unlike the Greeks, the Chinese have lots of hard currency with which to intervene and there is every reason to believe that the possibility of a Chinese crash will be averted. For now.

Infinitesimal interest rates and overbought markets are, at the moment, haunting the US, the UK, Europe, Japan and China. Fernadez thinks that “the players” have figured it all out and have comfy armchairs waiting when the music stops.

I am not so sure. The players have always counted on governments to step in when there is a cash crunch. When the derivatives have been drawn against busted counter-parties, when the “too big to fail” surprise us by failing. To date, that assumption has been true. It has been true because the governments have had the means – usually the printing press – to literally paper over the flaws in the system. At the moment the Greeks do not but the EU does and I suspect will. At the moment, the Chinese market is in free fall but the Chinese government has the cash to bail them out. But cash, however abstracted, is a finite resource. If you print more than your economy can sustain your cash begins to lose its value against real assets, against food, against bills of lading which must be settled on arrival.

The music is still playing and only the smallest children have been denied seats; but now the scramble is on to secure a seat for the next round.

The one thing which the world seems incapable of doing right at the moment is making more chairs.

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Grexit

Apparently, today, Greece is to have an ultimatum, or is it a prenultimatum. No matter, the EU and the IMF and the Germans are really serious now and they are not prepared to put up with any more waffles. Or are they?

The biggest problem the Greeks and the Eurozone face is the fact that neither side is willing to really draw that line in the sand. The Greeks keep spinning and the EU types keep backing away from the possible calamity of Grexit.

The Greeks are counting on the theory that the Eurozone and the EU cannot withstand the possibility of Greece defaulting. Are the Greeks right? On the numbers almost certainly not. Greece is 2% of the overall Euro GDP. They owe something on the order of 150 billion Euros which sounds like a lot but much of that debt is hedged and much of it will be repaid. The European banking community has managed to transfer a lot of the Greek debt to the assorted government and quasi-governmental institutions. Sure, they will take a hit, but not a balance sheet busting one.

From the European perspective losing Greece would be sad but not quite on the order of losing Spain or Italy. The EU will continue, the Euro will survive.

In world terms, the Greek exit/default/bankruptcy is a buying opportunity. Mr. Cook has denied that Apple will buy Greece but that will not stop any number of hedge funds and sovereign wealth funds from stepping up and buying bits of it. And, if the Grexit results in a drachma worth pennies on the Euro it is a dandy bet that plenty of Germans, Brits and French people will be only too delighted to buy that Greek villa they were priced out of previously.

A fire sale is not likely to be politically popular in Greece, but there is not a lot which a government can do to prevent private transactions between consenting adults. Especially in a country where the law is breaking down.

From the world wide perspective, Greek default is unfortunate but a long way from tragic. From a Greek perspective, it is probably the only way out. The only people who are likely to suffer really nasty consequences are the Eurocrats whose mantra of “ever closer” will lie broken at the side of the road. I shall try to work up a tear, but I doubt I will succeed.

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Swiss reaction

The Swiss unpegged the franc against the Euro.

Do they know something the rest of world doesn’t.

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Hmmm…

When even the British have cut their army so much that, in the event of a serious crisis, there would be at most two dozen infantry battalions on hand in the UK (that’s well under 20,000 bayonets), one has to wonder if the next London “disturbances” could be kept in check if things got truly ugly. It’s commonly held by European security insiders that if the next Anders Brievik were to target Muslims, not fellow Europeans, things could get unimaginably ugly very quickly. It is difficult to see how Europe’s much smaller militaries could cope with massive civil disturbances. (And don’t ask Uncle Sam for help, since the very last thing the Pentagon wants is to get dragged into any riot suppression – particularly putting down Muslim uprisings – anywhere in Europe.)  20committee.com

Europe is looking ugly. The Greeks are rioting, the Spaniards are protesting and Venice wants to separate from the rest of Italy. The elites, the europhiles, are trying very hard to pretend that there is no Euro crisis, that massive immigration and non-assimilation does not matter and that things are largely under control. For the moment, at least the last statement is true.

The Swiss, quite rightly, are preparing for the moment when “under control” turns to “out of control”. At this point that moment seems a long way off. But the point about change is that it happens fast.

The Swiss are right to prepare…for what is not at all clear.

The Pain in Spain

2-Year Yield + 36.5 basis points to 7.007%
5-Year Yield + 12.5 basis points to 7.717%
10-Year Yield + 2.7 basis points to 7.648%
Read more at http://globaleconomicanalysis.blogspot.ca/#j0IF5ghsbAo5Ay0p.99

Bond junkies will note a mildly inverted yield curve. The rest of us should be looking at the headline number of over 7%.

The Euro is, agonizingly slowly, unwinding. Sovereign debt is being priced in Greece (no sale), Portugal, Italy and Spain as if these nations were not in the Euro. Which strongly suggests  that the markets no longer believe that the Euro is going to last much longer.

Which, realistically, it shouldn’t. It was not a terrifically good idea in the first place to hitch disperate economies together in one currency.  Jane Jacobs once wrote that a single currency across a variety of regional economies was rather like one set of lungs shared between a person running, one sitting, one walking and one asleep – no one would be getting optimal performance.

The great thrust of the 20th century was towards ever larger units. The EU, the Euro, NAFTA, ASEAN and so on. In so far as these were trading units they might create efficiencies (though at what cost?). But closer integration makes less and less sense as high speed communications and increased computer power, reduce the need for the economies of scale promised by ever larger units.

I suspect that the thrust of the 21st century will be away from large units and towards small, efficient, states and regions. At smaller scales it is possible to innovate and experiment. Pushing power away from the “center” towards the edge means that it is much closer to the people and much closer to their specific concerns rather than the amorphous aggregate which somehow satisfies no one.

Ambrose on Spain

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Merkel Blinks…

On Thursday night, Italy and Spain plunged an EU summit into disarray by threatening to block “everything” unless Germany and other eurozone countries backed their demands for help.

Mario Monti, the Italian Prime Minister, celebrated the agreement, reached in the early hours of Friday, as a “very important deal for the future of the EU and the eurozone”.  the telegraph

Or did she?

Monti didn’t get everything he wanted, Dutch Prime Minister Mark Rutte told reporters. Italy “wanted direct bond buying by the aid funds in the secondary market,” he said. “That’s not going to happen. They wanted an interest-rate cap. That’s not going to happen either.” bloomberg

There are conditions. The Germans will see them met.

Much as I would like this endless crisis ended I fear the great and the good of Euroland have simply kicked the can another five yards.

Keeping the Euro is insane for Greece, Spain, Portugal and perhaps Italy and France as well. But the colleagues will persist.

Which kills the Greeks and the rest of the PIGGs…and worse, the rest of us.

Nick Clegg really is a Wanker

The Deputy Prime Minister will announce a series of last minute concessions to critics of his much-cherished proposals for a mainly-elected Second Chamber of Parliament when he publishes the Lords reform Bill today.

However, there was little indication that rebel Tories would be appeased, with four ministerial aides poised to quit the government in order to vote against the Bill.

Up to 100 Tory backbenchers have formed a group aimed at blocking the reforms and Ed Miliband announced that Labour would oppose the government’s plan to speed the Bill through Parliament. telegraph

With the Euro burning and the EU on the edge it there a more idiotic crusade than to make the House of Lords an elected assembly with proportional representation and 15 year terms…It would be hard to imagine anything less important to the fate of the United Kingdom.

But Nick comes through in the pinch.

Euro-Realism

This won’t last…

She hit out at Mr Hollande for blocking EU supervision of national spending and supporting eurobonds, which she warned would “mask” divergences between Germany and “mediocre” or declining eurozone economies, such as that of France.

If you look at the development of unit labour costs between Germany and France, differences have now been growing a lot more strongly, a topic that must be discussed,” Mrs Merkel said. telegraph

Mrs. Merkel is so mean. She insists on noticing a productivity divergence. That will not endear her to the French/Italian/Spanish/Greek cultures which reject the crazy Anglo-Saxon idea that you work for what you get.

In the end the Germans get to make a choice – do they let the kids keep the credit card for another year or two or do they cancel the account and tell the children they are on their own.

It is one thing to help the kids make rent for a short month, it is quite another to pay the rent year in, year out.

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