Useless gobshites

God bless the freedom of the press and the Irish!

Shame our media are so studiedly low-key. But then again, when you are reporting what my main man Ambrose E-P has to say, the facts scream more than loudly enough.

I see Angela Merkel  has declared that "I vill not let up on this because the primacy of politics over markets must be enforced."

How are you going to do that, Angela?

The Euro - why Germany should pay the costs of maintaining it

Many thanks to Burning Our Money for this highly illuminating graph.

P = Portugal
I = Italy
I = Ireland
G = Greece
S = Spain

Fair enough, you may say. The Big Bad Wolfsburgs had to cope with the indigestion of swallowing East Germany and they have just - well - run their country far more competently than the happy-go-lucky PIIGS.

That's not the way it works, though. The houses of wood and straw may have blown away, but there is always the final refuge of a floating currency that simply sails with the prevailing wind.

Seems to me that if the Germans want to keep the advantages of the Euro, they should also shoulder the cost of maintaining it. Bit of a political problem for Merkel, though. If she admits this to her domestic audience to pacify their self-righteous outrage about the PIIGS's profligacy, she will make it extremely difficult for the the PIIGS leaders to sell austerity to their own people.

The other shoe Part 2

Further to my last two posts, I am grateful to Burning Our Money for this graphic of British banks' exposure to Spain, Greece, Ireland and Portugal.

As the man said, "overall exposure to the Irish economy is by no means trivial", but it's come whistling down from the peak a year ago, which shows an unexpected amount of intelligence at work.

Damn that British understatement - you never know when it's for real. Now what do I do with all the tinned goods I bought?

The other shoe drops

In EU Dominos Part 2 I asked: What is the exposure of British banks, in particular the nationalised and semi-nationalised ones, to the Euro debacle? Comes Mervyn King to answer:

While the direct holdings of Irish sovereign debt are not especially large, ownership of securities issued by Irish banks are bigger and of course there are wider exposures to assets comprising loans to the Irish economy more generally. So I think the overall exposure to the Irish economy is by no means trivial.

There are some very delicate discussions going on in Europe as we speak. It’s something which is relevant to concern about financial stability in the U.K., but it’s focused more generally on the Irish economy, then the Irish banking system and only to a relatively small extent direct exposures to Irish sovereign debt.

"By no means trivial", eh? Aaaaargh! Buy gold and stock up on tinned goods!

EU dominos Part 2

Hot on the heels of Ambrose E-P's soothscribing, Peter Oborne weighs in with some tell-it-like-it-is.

For Greece and Ireland, there is an absurdly easy way back to economic growth: return to the drachma and the punt. Such a move would enable national currencies to fall back to levels where they can be internationally competitive – which in the case of hapless Greece would be approximately one third of where it stands today.

Assertions by the big bankers and eurocrats that such a move is technically impossible are self-serving and false. It would of course be very messy in the short term, but there are many examples of countries pulling out of currency unions with no lasting ill-effect.

The peripheral eurozone nations are being prevented from taking this sensible move by a cynical alliance between the big banks and the Brussels elite. The banks cannot countenance any contraction of the eurozone because once Greece, Ireland, Portugal and Spain pull out, they will have no choice but to default on their debts. Such a move would bankrupt almost all European banks. Between them these four countries have a combined sovereign debt of well over £1 trillion. A very large part of this debt is owned by the major European banks. The Bank of International Settlements estimates, for example, that French financial institutions have lent the equivalent of 37 per cent of total French GDP to these failing countries.

So - I'm waiting for the other shoe to drop, in the confident expectation that when it does it will reveal the holes in the socks of the Coaltion government in the UK, through which we will be able to see the true reasons for Cameron's extraordinary contorsions.

And the question is . . .

What is the exposure of British banks, in particular the nationalised and semi-nationalised ones, to the Euro debacle?

Is Ireland the key domino?

Soothscribe Ambrose E-P is in no doubt. He quotes a spokesman for Unicredit, the pan-European banking organization, on the "breath-taking mixture of suicidal irresponsibility and farcical incoherence" that has precipitated a further financial crisis in long-suffering Ireland.

Like Alpinistas roped together, an ever-reduced core of solvent states are supposed to carry the weight on an ever-widening group of insolvent states dangling beneath them. This lacks political credibility and may be tested to destruction if - as seems likely - Ireland is forced to ask for help. At which moment the chain-reaction begins in earnest, starting with Iberia.

It was a grave error for Germany’s Angela Merkel and France’s Nicolas Sarkozy to invoke the spectre of sovereign defaults and bondholder “haircuts” at this delicate juncture, ignoring warnings from ECB chief Jean-Claude Trichet that such talk would set off investor flight from high-debt states.

EU leaders have since made a clumsy attempt to undo the damage, insisting that the policy shift would have “no impact whatsoever” on existing bonds. It would come into force only after mid-2013 under the new bail-out mechanism. Nobody is fooled by such a distinction.

Sadly for Ireland, events have snowballed out of control. Confidence has collapsed before Irish export industries - pharma, medical devices, IT, and backroom services - have had time to pull the country out of its tailspin.

Premier Brian Cowen - who presides over a budget deficit of 32 percent of GDP this year - still insists that no rescue is needed. “We have adequate funding right up until July,” he said. Mr Cowan must know this is not enough. Funding for Irish banks has evaporated, and with it funding for Irish firms.

Foreign creditors hold €2 trillion of debt securities issued by Greece, Ireland, Portugal and Spain. If Ireland goes, so goes Portugal, which is in even worse shape - and then Spain? At what point will the more solvent EU economies cut the rope?