Lord Stoddart on the Eurozone

Lord Stoddart of Swindon: Britain is not a member of the eurozone. We have decided to keep our own currency. There is no prospect of our joining the eurozone. So why on earth does our Prime Minister keep lecturing the eurozone as to how it should carry on, including whether it should have a banking union? Since we are not part of it, it is nothing to do with us, and we should keep out of it.

The second point I want to raise has already been raised-that is, the position in relation to Angela Merkel, the German Chancellor, who seems to be throwing her weight about increasingly these days. The Prime Minister does not have to satisfy Angela Merkel; he has to satisfy the people of this country, and the people of this country, we understand, will suffer austerity for the next 10 years, which means that they cannot afford to pay any more than the £10.3 billion that we already pay into EU coffers. I hope that the Prime Minister realises that he is not answerable to the EU for taxation and our contributions. He is responsible to the British people, who show increasingly that they are not very happy about remaining in the European Union, and who will be even unhappier if they are asked to pay even more towards it.

Lord Strathclyde: My Lords, that is the point that I was trying to make to the noble Lord, Lord Grenfell. I have every sympathy with the view given by the noble Lord, Lord Stoddart. It is entirely correct that, although we believe that the economy is heading for a state of recovery and long-term growth, many budgets are being cut in Britain, and we are not in the business of seeing them being increased in Europe, where British taxpayers will have to foot the bill. But that is a discussion that will take place, first between the Prime Minister and Mrs Merkel and then, later on, in the Council of Ministers.

As for the noble Lord’s question as to why we are interested in the banking union, self-evidently financial services and financial matters are incredibly important to the United Kingdom-it is one of our key interests-and to the City of London. It is entirely right that we should take note of what is happening in the zone where nearly 40% of our exports go. One of the many reasons why this economy has suffered in recent years is because of the uncertainty in the eurozone, which we believe needed to be resolved-and one way in which to do that is through the banking union.

Eurosceptics accuse David Cameron on breathtaking hypocrisy over Europe

Euroscepticshave accused the Prime Minister of “breathtaking hypocrisy” following the news that, despite vowing to secure a total freeze on the European Union’s already bloated budget, he has accepted a compromise solution which will see the EU budget grow by almost 3%.

This means that an extra half a billion pounds of British taxpayers’ money will be poured into Brussels’ coffers – at the same time that the UK Government is seeking to curb the nation’s deficit by slashing its spending on defence, the police, and other essential public services.

The cross-party Campaign for an Independent Britain (CIB) has attacked this policy as “an appalling example of political double standards and a betrayal of British taxpayers”.

CIB, which includes backbench MPs on both sides of the House of Commons, says that David Cameron was hypocritical in pledging that he would fight for British interests when in fact he knew all along that his Government would have to end up agreeing to an increase in the EU’s £107 billion annual budget.

Under the terms of the Lisbon Treaty (on which Mr Cameron originally promised a referendum – before backtracking on this pledge), the UK has to accept the will of the majority of European Union governments. With the EU continually extending its powers – and therefore its costs – this was always likely to mean an increased UK contribution.

CIB Chairman George West said: “The Prime Minister has spent the past few days trying to reassure a sceptical British public that he is on our side. All we’ve had from him is fighting talk. David Cameron went to Brussels vowing to stick up for British interests – but unlike his heroine Margaret Thatcher he is set to come back from the European summit, having run up the white flag on Day One!

“Unfortunately, British capitulation was inevitable from the start – thanks to the Lisbon Treaty. Either Mr Cameron knew all along what would happen or he’s allowed himself to be outflanked and outmanoeuvred by his so-called ‘European allies’. Either way, this shows poor leadership on the part of Britain’s Prime Minister.

“I suspect that the next betrayal is not long away. The EU is planning a further power-grab in the guise of what the European Commission is calling ‘a limited treaty change’, and the indications are that, once again, the British Government will roll over and play dead.”

The CIB Chairman added: “David Cameron has promised that there will be no further transfers of power to Brussels without asking the British people first. The test of Mr Cameron’s Premiership will be whether he is willing to give us a referendum on this ‘limited treaty change’, having reneged on his ‘cast-iron guarantee’ to let us vote on Lisbon.

“Mr Cameron, we are watching and waiting.”

Free and open debate on the future of the euro and EU must be supported and not suppressed by EU leaders – Statement by EUDemocrats 28 September 2012

The EUDemocrats support a democratic, open and tolerant Europe. We consider a climate of free and open debate a pre-requisite for any well-functioning political system. Recent statements by German Chancellor Angela Merkel, European Commissioner for Economic and Monetary Affairs Olli Rehn and President of the Eurogroup Jean-Claude Juncker, which urged suppression of comments on the euro crisis, are contrary to the European tradition of open, free and fact based political debate.

In her most high-profile interview this summer, Chancellor Angela Merkel told German state broadcaster ARD that everyone should “choose their words carefully” when discussing the situation in Greece. Meanwhile her colleague, Jean-Claude Juncker, the head of the Eurogroup and Prime Minister of Luxembourg, told those who ceaselessly call for Greece to exit the euro, to “shut up” so the “progress” of the Greek reform programme is not threatened. Previously he labelled debate over Greek Eurozone membership “unhelpful.” Rounding up the concerted action of debate suppression, Commissioner Olli Rehn, speaking at a gathering of ambassadors in Helsinki complained that Finland has succeeded in creating an image of a country that doubts its role in European integration and is considering an exit from the euro.

European leaders should not support this type of concerted suppression of critics of the EU’s policy-response to the economic crisis. Eventually it will lead to less objective debate and inevitably worse decision making, as citizens and representatives of alternative points of view are excluded from the debate on the future of the euro and the EU.

Alternative approaches must be explored and allowed to exist, even in public, otherwise Europe risks more Brussels-based group-think and prolonged economic hardship. If an open and serious debate had been allowed to take place across Europe prior to the launch of the euro currency, many questions raised by critics at the time could have led to a less economically and democratically harmful currency policy. Once again attempting to suppress open debate is not the answer. The EUDemocrats wholeheartedly support free speech and constructive debate, and exceptions cannot be made for euro-related issues or EU policy.

Crisis in the Zone

Everyone will be familiar with the euro crisis and the possible departure of Greece and other countries from the monetary union. The crisis has many sub-plots – political, economic and financial – but even a well-informed reader might be forgiven for not following the curious tale of the TARGET2 (Trans European Automated Real Time Gross Settlement Express Transfer) balances.

It has attracted little attention in the UK press but it has emblazoned all over the German media. The story begins with the birth of monetary union and involves a fundamental lack of transparent accounting which has fuelled complexity and distrust throughout the entire system.

Within a currency area, payments between participants are ultimately settled by their banks in ‘central bank money’. This means that the payer will instruct its bank to transfer money to the recipient’s bank. The respective banks will reflect their settlements via their accounts with the central bank. A central bank will monitor balances with individual banks and may set limits. In addition, it will usually ask for any claims it may have on a bank to be collateralised by, for example, government debt.

Within the euro area, there are seventeen national central banks (NCBs) and the European Central Bank (ECB), collectively called the euro system. These separate organisations have to function in effect, as a single, central bank and the role of TARGET2 is to bind them together.

If a depositor transfers money from a Greek Bank to a German Bank, ultimately the transfer will show up as a claim by the Bundesbank against the National Bank of Greece. These balances between NCBs are not cleared down or settled by the transfer of foreign exchange or gold, nor are they collateralised. Incredibly, there is no cap on how large they can get.

When the euro was set up, the claims were bilateral between NCBs. However, as the pre-euro national payment systems have been replaced by TARGET and now TARGET2, the ECB has stepped in as a clearing house. Intra-Eurosystem balances are now automatically aggregated and, at the end of the day, netted out throughout the euro system, leaving each NCB with a single bilateral position vis-a-vis the ECB. As a result some NCBs have a TARGET2 claim and others are TARGET 2 liability vis-a-vis the ECB.

Lack of Accountability

Does any of this matter? Before the crisis, the balances between the NCBs were not significant at January 2007. The banks funded them through the interbank market privately. However, following the crisis, these private sources of funding dried up and the banks in sovereign states of the periphery (the PIIGS – Portugal, Ireland, Italy, Greece, Spain) could only raise funds via the TARGET2 system. The TARGET2 balances began to rise after 2007 but this was not noticed because of the opaque accounting treatment adopted by the ECB. Any normal bank or company shows the money owed to it in its current assets and money owed by it in its current liabilities so you get a full picture of what is due in and what is owed. But the ECB is not a normal bank. It NETTED OFF the liabilities against the assets so it showed a mere €49.4 billion owed to it by member states.

However in 2011 two enterprising economists, Hans-Werner Sinn and Timo Wollmershauser, found a way of sourcing the full data from the IMF databank and were able to present the full picture.

As of April 2012, the debtor NCBs have BORROWED over €850bn from the rest of the system , €650bn of which is owed by the PIIGS. This is principally funded by Germany (€463bn) and the Netherlands (€152bn) and little Luxemburg ((€109bn. Worryingly, these negative balances have arisen despite public money inflows such as European Union International Monetary Funds loans, which eventually end up in the banking systems. These balances represent massive transfers of wealth – Germany’s balance represents 20% of its annual GDP. This transfer happened without any political accountability or democratic process – just through the automatic function of the monetary union. It is worth comparing this complete absence of political process with the attention and scrutiny associated with the European financial stability facility (EFSF), which was recently increased to €780bn.

Who Knew?

In the absence of standard accounting practices, or at least disclosure by the ECB, nobody knew what was happening. The ECB responded that the TARGET2 system was working as it was intended to, and cannot be capped since a euro must be worth the same in all parts of the currency area, and freely transferable as well. Some official voices have even suggested that the size of these balances is only a problem if the public know about them.

The debate, indeed outcry, in Germany about these balances shows that the full implications of monetary union were not properly understood by the vast majority of citizens, even though there were references to the possibility of this type of event in academic literature.

Concern is particularly high now because if Greece were to leave the monetary union, it would not be in a position to repay the €100bn odd Euros that its NCB owes the rest of the euro system. Of course, the whole edifice was set up without any limitations on TARGET2 balances, wholly on the basis that no country would ever leave the euro. Although this remains the official position of the ECB, in practice politicians speak openly of this as a possibility.

If the ECB were to suffer from an NCB not meeting its obligations on TARGET2, a Greek exit would wipe out the entire capital of the ECB which has capital and reserves of approximately €31bn, rendering it insolvent. This would require the other NCBs, which collectively own the ECB, to contribute additional capital to it but 12 of the 17 NCBs are already heavily indebted to the ECB and are certainly not in any position to contribute more capital.

The absence of proper accounting for these balances deprived the public of visibility on the balance of payments crisis developing within the euro zone after the credit crunch and has the potential to bring down the ECB and national central banks of member countries with it.

Intra Eurosystem Assets (€billion)

Austria                -34.6 Belguim             -52.8 Cyprus                  -7.9 France                -79.6 Greece             -104.8 Ireland              -142.4 Italy                   -191.4 Malta                     -0.4 Portugal             -60.9 Slovakia             -13.6 Spain               -150.8 Total                 -842.0
Intra Eurosystem Liabilities (€ billion)

Estonia                1.0 Finland              66.0 Germany         463.3 Luxembourg   109.5 Netherlands   152.8 Total                 792.6
Adapted from an article which was published in Accountancy magazine

This time the Greeks must beware of Paris bearing gifts by Tim Gordon

EU summits to save the Euro seem to happen on a more or less monthly basis. Summits happen come along so often they must be called a ridge.

The June 2012 summit was a little different: it has been reported as a rebellion led by Hollande and Monti against Angela Merkel. Some have seen it as a rebellion against Germany to relieve the misery of those countries suffering from a so-called bailout.

Moreover, it has been reported as a victory for the rebellious colonies and a defeat for the Empress. Those lands ravaged by Teutonic austerity may have a hero, a Nevsky, in the new French president. His gifts for PIIGS but cultured not real.

French European policy since the last war, the whole French purpose of the EU, can be summed up as the denial of Europe as a German empire. France and Germany are equal partners, they say, and besides, it is not an empire: all those other members of the EU are sort of equal too.

But it is not really possible to describe the Euro in any other way than a system with Germany at the centre that exists for the benefit of German exports. Germany really is the only country to benefit, economically, from the Euro. The Euro does seem to give some kind of psychological and emotional benefit to peoples without much self-confidence, but this is illusory. The Euro gives Germany power over the Eurozone – and Germany should accept the responsibilities like a good, beneficient imperial should.

French and Italian and other governments have more reasonable complaint about the conditions of empire. But that is how it is. So, Greeks should beware of Paris when he says he is bearing gifts, because the gifts are not his to give. Hollande can rebel but can never call the shots. That is the first lesson.

I am very fond nowadays of going around quoting Karl Marx: the people who pay for an empire are the working classes of the imperial power. Therefore an empire collapses when the benefits that derive to the elites and the working classes of the imperial are no longer sufficient to warrant the price paid by those working classes. And just because I think it was Marx who said it does not mean it is not how it is. You pay for your empire as long as is profitable. When it is no longer profitable, you dump it.

As long as Germay profits from the Euro, Germany will do what it takes to keep the Euro alive.

So far what has Germany paid? That word “bailout” is a lie in itself. The bailout is not a gift, support, it is an enforced loan for a purpose not supported by the victim country. Germany benefits from the Euro because it locks a continent into a favourable trade relationship: it keeps German factories busy. What Paris thinks is neither here nor there. What is said in Finland can be fun but when it comes to it, the Finnish contribution to Germany’s Euro is comparable to Britain’s contribution to USA’s invasion of Iraq. All Paris has is a complaint and a series of petulant demands and peurile fantasies that are all that passes for socialism nowadays.

Alright, there is the conventional view. What a disappointment that HM Government still sees it as being in Britain’s interest that the Euro and with its German hegemony (if I can be forgiven for using such a 1980s word) is maintained and flourishes. It is not that it is German but that it is a single continental order essentially hostile to Britain and her friends that is the problem.

The Eurosceptic must put forward a series of policies that really can offer a way forward to the people of Greece, Ireland, etc, etc. Never mind the Euro, it is the people we need to save.

What policies should be the focus now of eurosceptic thought. Imagine Greece was a struggling business you had just bought. It is desperate because it has been mismanaged but is basically good. Would you run it as Germany is running Greece? Of course not. But Greece is not some struggling business but a decent nation of people who command respect.

It is a source of shame to Britain that our Government does not have an alternative policy but advances the silliness that while membership of the Euro would be bad, the existence of the Euro is critically important. It is the essential purpose of the eurosceptic movement to provide a superior policy to that of the Euro. Although we offered a warning against what has happened, we must now offer a way ahead.

Decline of the eurozone

It is said by the three main political parties that the UK must remain in the EU because it is our major trading partner and hence vital to our prosperity.

Professor Tim Congdon CBE, with the help of figures from the International Monetary Fund (IMF) database (see below) explains: The numbers are immensely helpful because they extend over a 25-year period and so help in identifying trends. They start in 1991, when the Maastricht Treaty was being negotiated and the euro was conceived, and end with forecasts for 2016. (The analysis is slightly incomplete, because it ignores some of the smaller countries, but apart from Poland and Sweden none of these 10 countries is of much importance).

In 1981 the eurozone output represented 21.8% of the world output. Their problem was and remains, that the excessive taxation and heavy regulation inflicted on them by the EU has held them back. The figures show that the eurozone’s share of the world output has plunged by a third – from 21.8% in 1991 to 14.3% in 2011.

It is entirely plausible that out grandchildren will live in a world where the eurozone produces only 6 or 7 per cent of world output. In other words, in their world the nations that today have neither EU membership nor the euro as their currency will outweigh the eurozone by well over ten to one.

Eurozone as a percentage share of world output per year

1991 21.821 2000 18.349 2009 15.015
1992 20.172 2001 18.300 2010 14.556
1993 19.610 2002 17.968 2011 14.253
1994 19.485 2003 17.482 2012 13.861
1995 19.290 2004 16.989 2013 13.478
1996 18.887 2005 16.541 2014 13.100
1997 18.606 2006 16.235 2015 12.722
1998 18.659 2007 15.881 2016 12.350
1999 18.535 2008 15.534

First appeared in EuroFacts, 22nd June 2012