Once in a while something comes along which makes a lot of sense. This morning for some reason Paul Simon’s song: ’50 ways to leave a lover’ kept coming back to me, only when I checked it out on Youtube did I realise why:
The problem is all inside your head,
She said to me,
The answer is easy if you,
Take it logically,
I'd like to help you in your struggle,
To be free,
There must be fifty ways,
To leave the EU
CHORUS:
You just slip out the back, Jack
Make a new plan, Stan
You don't need to be coy, Roy
Just get yourself free
Hop on the bus, Gus
You don't need to discuss much
Just drop off the key, Lee
And get yourself free
Basically this song written by an American is to me right now all about the European Union debt crisis!
‘It is all inside your head’ – true – most of the higher and higher yields in Europe are a result of disbelief in the credibility of the EU – and rightly so, but the EU has had more than 16, yes sixteen meetings to solve what in its initial stages was a simple issue.
Two major events created EU debt crisis
To me there are two major events in EU history which have predominantly created this EU debt crisis and made it into a slippery road for all investors and voters:
- The failure to implement a stability and growth pact into EU law early on, and then seeing core European countries like Germany, the Netherlands, and France being in violation of the rules almost from the start. At the time Spain, ironically, was trying to enforce the same “punishment” on Germany and France to no avail.
- The second and most recent thing being the May 2010: EU Summit which allowed the European Central Bank to intervene in the secondary market to buy peripheral bonds – this was de facto the establishment of EURO-bonds, as the ECB now has these bonds on its balance sheet. The ECB is owned by and receives repo from…. Yes, all of the EU members (relative to GDP). Forget the talk about EURO bonds they are in place as of now!
Fix it with logical measures
‘The answer is easy if you, take it logically' – Introduce debt breaks into national laws which will control the eager beaver politicians to always meet a challenge by increasing public spending – and for national banks to obey certain maximum criteria. This would be an early restart of a non-FIAT system, where these rules substitute the old Gold-standard.
Also there should always be a minimum of five-year rolling tri-part agreements between the public sector, unions and employers on competitiveness and fairness for salaries, compensation and control on costs and research.
Finally an incentive program to entice huge private savings into creating jobs through tax discounts for investment in entrepreneurs, risk capital and jobs. We need private capital to “crowd out public” – not the other way around.
Need unconventional thinking and plans
‘Make a new plan, Stan’ – Yes, call a meeting of the “Cardinals of Europe” – lock them into a hotel and don’t let them out before the white smoke is coming through the chimney – there are no good-solutions left in the EU. We need unconventional thinking and plans – this will however only happen when the stock market is really down – the fixed income market is clearly telling policy makers day-by-day: “Hop on the bus, Gus’ but they refuse to ‘Just drop off the key, Lee’ as they feel they do have a solution, but the market just does not understand it!
Germany to show its hand soon
This Friday panic might be high, but I fail to see any new mobility from German on the issue of committing further to the EU process. If anything the press and Government are digging their heels in harder. Is this part of the game theory? – Trying to find the best bargain position or is it really the “dogmatic German” way of thinking. If it is the latter then this is the end of Europe as we know it, but more likely, the Germans through EU history have caved in on the last day, at the last minute. The market will force Germany to show its hand soon, maybe ultimately this was the lesson of this week. The near-miss/failed auction in Germany showed the Germans that they are no longer immune to the attack on the core of the Eurozone. Time will tell!