Tag Archives: Eurozone

The Eurozone’s financial disintegration, by Alastair Macleod

Northern European central banks have been monetizing southern European debts, and the balances are adding up. from Alastair Macleod at goldmoney.com:

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Introduction

The Euro Crisis Monitor (above) shows the increasing imbalances in the TARGET2 settlement system between all its members: the ECB (itself with a €145bn deficit) and the national central banks in the Eurozone. Other than minor differences reflecting net cross-border trade not matched by investment flows going the other way, these imbalances should not exist. But following the Lehman crisis and as the Eurozone developed its own series of crises, imbalances arose. Commentators have grown used to them, so have more or less given up pointing them out. But in the last few months, the apparent flight into the Bundesbank (€995,083m surplus) has gathered pace, as have the deficits for Italy (€536,722m) and Spain (€451,798m). It is time to take these rising imbalances seriously again.

Target2 — the ECB’s flexible friend

Target2 is the settlement system for transfers between the national central banks. The way it works, in theory, is as follows. A German manufacturer sells goods to an Italian business. The Italian business pays by bank transfer drawn on its Italian bank via the Italian central bank through the Target2 system, crediting the German manufacturer’s German bank through Germany’s central bank.

But since the Lehman crisis, and more noticeably the last eurozone crisis, capital flows appear to have gravitated from Portugal, Italy, Greece and Spain (the PIGS — remember them?) to principally Germany, Luxembourg, Netherlands and Finland in that order. Before 2008, the balance was maintained by trade deficits in Greece, for example, being offset by capital inflows as residents elsewhere in the eurozone bought Greek bonds, other investments in Greece and the tourist trade collected net cash revenues.

In this sense, it would be wrong to suggest that trade imbalances have led to Target2 imbalances. But part of the problem must be put down to the failure of private sector investment flows to recycle.

Then there is the question of “capital flight”, which is not capital flight as such.

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Why Europe must end in tears, by Alasdair Macleod

Garbage in, garbage out—the slow motion disaster that is the Eurozone is the product of bad ideas and delusion. From Alasdair Macleod at wealth.goldmoney.com:

The latest consequence of economic mismanagement in Europe was the failed attempt at constitutional reform in Italy this week.

The Italian people have had enough of their government’s economic failure, and is refusing to give it more power.

The EU and the euro project have been an economic disaster for all participants, including Germany, which will eventually be forced to write off the hard-earned savings she has lent to other Eurozone members. We know, with absolute certainty, that the euro will self-destruct and the Eurozone will disintegrate.

We know this for one reason above all. The political class and the ECB are guided by economic beliefs – I cannot dignify them by calling them reasoned theory – which will guarantee this outcome. Furthermore, they insist on using statistics that are incorrect for the stated function, the best example being GDP, which I have criticised endlessly and won’t repeat here. Furthermore, the numbers are misrepresented by government statisticians, CPI and unemployment figures being prime examples.

This article takes a column written by William Hague for the Daily Telegraph published earlier this week to illustrate the depths of misunderstanding even a relatively enlightened politician suffers, with this mix of nonsense and statistical propagandai. This article also refers to a speech delivered this week in Liverpool by Mark Carney, Governor of the Bank of England, showing how out of touch with reality he is as well. Many of his and Lord Hague’s misconceptions are shared by almost everyone, so for the most part go unnoticed.

To continue reading: Why Europe must end in tears