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a new council for winter with the euro at cruising speed Kroes

By the way, yesterday I had a little discussion on twitter . I'm a fan of Barroso, as you know. I said an adviser to the Commission which is the one that has moved for a common EU position before the events in Egypt and Tunisia. I asked for evidence. I think that Barroso is the leader most committed to a political Europe, and I've always said but lacks capacity to impose. affirm that the Barroso Commission has II a higher profile and ambitious than we imagined, but he has had to deal with strange times. Anyway. Life goes on and we can still find reasons to poetry. I love February. Always inspired me. Is very short, vitalizing. The heart of winter. This Friday the 4 comes the new Council of winter in Brussels. The agenda of the 27 planned Energy and R & D. But also talk about the euro, added at the last minute point. Will address the possible increase in the European Financial Stability Fund (FEEF), at the request of Barroso, who is very persistent, as we know. We have been talking for over a year of turbulence of second chances, emergency landings, blah, blah, blah. It seemed that in recent quarters each Council meeting in Brussels was the story of a Greek tragedy. As one would expect, the writers addicted to the corridors (which Wikileaks fashion have been trampled on the ground) are looking scuffle and magnifying discord in their columns and commentary. an insider account that the private and dined Tuesday Merkel and Barroso tensely in a baroque palace in Berlin (attached photo of the site). The reporter who enters the details are recreated in the course disagree about increasing the stability fund, and just introducing Van Rompuy as a solution. I could not disagree more. In fact, it appears that Barroso was so persuasive that Berlin is reconsidering famous increase of 440 billion euros FEEF.

Now that we are about to put the autopilot in command of the single currency, it is anachronistic to influence the internal squabbles among European leaders, although I understand that this band greatly among English-speaking readers (by the way, do not miss this article and comment from a reader who places the hand of the CIA after the UK's accession to the EU). It is true that the UK is the eternal rebel without a cause, but so is that it is the only practicing tactics "Empty chair" to boycott the negotiations on the boards, while debate on a possible referendum law conditional on future developments in European integration. Undoubtedly, a scenario that the British away from the single currency, but anything is possible, because I have that Cameron was very advocate of the euro in Davos last weekend, plus it is more pro-European senses in recently. How about the joint statement in Germany, France and Britain on the situation in Egypt that was published this Sunday? The issue of cross reactions in Europe to Egypt and Tunisia conflict deserves a special post day ...

wanted to talk in Brussels. This Friday will be discussed again at the Council on the future of the euro, and therefore go again today to try to shed light for all those people who often wonder what advantages has for us to enter the euro, or, if you have any sense to keep the single European currency. I tired the matter, and insist all that is needed in the elementary concepts. I'm sorry I over-extended in this introduction because I want to convey the idea is simple, even without falling into "my natural prejudices Federalists," though the euro is the most practical example of what is an instrument designed to address federal problems that states are unable to undertake themselves.

start remembering that the creation of the euro has been the most momentous step in the unity of Europe. We will continue to mention the crisis of the seventies, one in which European countries found that the instability of their currencies was an obstacle that criminalizes domestic economic development. Pass on tiptoe for the snake, in the eighties, which allowed exchange rates to converge to the Member States. In that situation, the worst positioned States failed to put its debt on the financial markets.

Therefore, in the nineties were encouraged to delegate monetary policy to an institution independent, as is the European Central Bank. The mere membership of the euro had a double dividend: reduced interest rates and, therefore, all countries had access to cheaper credit, and facilitated the placement of the sovereign debt markets, relying on the good health of the euro, absorbing healthy economies. However, the euro eliminated the ability of devaluation, an instrument traditionally used by governments to try to regain competitiveness by increasing exports. However, some forget that devaluation is not so advantageous, because it also reduces the value of the debt with foreign creditors if it is denominated in local currency, but the increases if in foreign currency. This may cause the international credit rating of a country is sinking.

precisely this argument is what makes it so expensive now out of the euro. The state will do so severely penalized.

During the first eight years of the euro all going well, until the markets started to distrust. Although not unique, the two most notorious cases have been the Greek and Irish. Greece collapsed, as its domestic consumption grew faster than its production, creating a debt which, moreover, had been concealed by the manipulation of official figures. In Ireland, the housing bubble created also too much debt and a surplus of housing over 20%. Also Italy, Portugal, Spain and Belgium were found with unusual levels of debt and a strong problem in their sovereign debt.

As we know, from May 2010 there is a formal mechanism that shines through political influence on the economy. I refer to the European Financial Stability Fund (FEEF). From then until the famous shot of China recently, it has rained a lot. It is suspected the existence of an agreement within Europe that would play outside rating agencies, which currently live off-peak times. Let me explain. For now, this system of debt paper purchase secondary to reduced prices, so those countries I mentioned can reduce their sovereign debt. It must be said that most holders of these debts are banks and European insurers, some semi-public, so that in fact interpreted by some Member States themselves are putting pressure on these institutions to speculate not demanding higher interest on the bonds, although in return get the implicit guarantee of these bonds will not deteriorate.

What the euro has to do with it?
We have a 16-euro area Member States, whose governments have to make loans on the international market to pay their debts. The eurozone conducive to countries are mutually supportive, but the Treaty prevents bailouts. Should therefore be amended by the Lisbon Treaty to increase the capacity of FEEF, and this explains why Germany has expressed its desire to amend the Treaty, precisely to avoid bankruptcy in a Member State has a cost shared by all. That is, the euro, first, means sharing costs, and secondly, requires states to recover their economies without resorting to devaluation, which forces an increase in demand and productivity, shrinking public expenditure, reducing wages, and all the hard and unpleasant measures with great political cost.

Monetary union is pushing us towards a government supranational economic. National leaders can no longer act freely, but must be consistency. No longer serves the open coordination that we got used to the system obsolete and Agenda 2000. The prospect of a European economic government raises fears, even among Federalists apparent as Angela Merkel. Let's be clear, Merkel is not just reliable and therefore prefer to benefit from less political mechanisms, such as the European Monetary Fund, where all Member States should put meat on the grill, taking risks, especially because Germany has so far played the role of savior.

or Eurobonds "economic government? Forming
The EU troika, the ECB and the IMF designed the support mechanism that has facilitated the placement of sovereign debt in the market. Thus, the market absorbed with astonishing speed and ease the first debt issuance FEEF (5 million euros in bonds to 5 years) at a moderate 2.5% interest.

Under this mechanism, which is made visible is that Member States are funding surpluses the creditworthiness of the entire eurozone. As you biennacidos be grateful, we will put a face to these generous countries: Germany, France, Luxembourg, Finland, Holland and Austria, although it was not necessary because the design of the euro is based on a confederalism that in this case, imposed on Member States to benefit from FEEF strong fiscal discipline and compliance, at last, the restrictions imposed by the now defunct Stability and Growth Pact. So

economic governance is implicitly assumed for the creation of monetary union has been materialized by expedited.

For example, just entered the invention of Van Rompuy and task force, the "European semester", the practice of national governments to submit in the first half of each year's budget and policies annual structural. Detect possible unbalancing the EU and the Council Shall identify each March the main economic challenges facing the EU, and provide strategic guidance to Member States, from which the government presented its medium-term budget strategies for the stability and convergence. Every July, based on the plans submitted in April, the European Council and the Council will submit their particulars to the Member States.

to consolidate this approach would exceed the old Stability and Growth Pact, the whole world to ride roughshod, and presumably will get a double benefit: improving the credibility (the least economical) of States and consolidate the recovery after 2013, upon expiration of the Stability Fund mechanism, which leads from head to Barroso.

This type of movement that refer to a homogenization of macroeconomic and fiscal standards in the eurozone, to some extent, are reminiscent of a federal Europe, but in a way it seems that could have immediate translation into the Eurobond issue.

federalization The scenario is the most encouraging. In fact, the Eurobonds would be issued by a European debt agency at the request of Member States. These bonds would be guaranteed by the EU as a whole. It is true that Germany is opposed, since it is supported to avoid a union in which the strong help the weak in a systematic way. However, consider the United States, a large federation with many asymmetries that is sustainable because it operates on the precept, ie transfers between states of the union. One option that said Germany, however, was the creation of the European Monetary Fund, through which governments can not raise money in private markets could get them from other European states, under strict conditions. In all scenarios, the reality of internal devaluation (austerity) for countries affected by the economic crisis seems inevitable, although it could be mitigated if institutionalized economic governance in the EU. For now, we know that China has targeted a number of Member States, acquiring sovereign debt (six billion euros of English bonds), which tells us that China is not at all concerned that the euro will disappear, which has a large trading partner in a European Union, the stronger and more stable. Do not second reading at the moment. Governments will have to impose the necessary restrictions, but the survival of the euro seems assured. So say the markets, and as rating agencies, they might be throwing the closure. Now it remains to see if it goes Barroso with it. Depends on which trend is going to impose on the Council this Friday. In March it expects decisive meeting of the Eurogroup. Let's enjoy the quiet while it lasts.


Image: Scholss Meseberg, where they dined Merkel and Barroso on Tuesday.