Tuesday, March 22, 2011

The Palindrome flies his jolly rodger...

Soros thinks the Germans are "confused" in their desire to defend their sovereignity at the expense of the nascent and deeply flawed EU project. His solution is to simply Federalize all European banks. An interesting position, and one common for those with power: simply take power away and distribute to other more friendly locales, while fighting those who would do the same to you without quarter.

Yo, ho ho, a pirate's life for me.

hope they can escape from their deficit predicament if they work hard enough atBerlin is imposing these arrangements under pressure from German public opinion, but the German public has not been told the truth and so is confused. The solution to the euro crisis to be put in place this week will set in stone a two-speed Europe. This will generate resentments that will endanger the EU’s political cohesion.

Two fundamental modifications are required. First, the European financial stability facility must rescue the banking system as well as member states. This will allow the restructuring of sovereign debt without precipitating a banking crisis. The size of the rescue package could stay the same because any amount used for recapitalising or liquidating banks would reduce the amount lent to sovereign states. Bringing the banks under European supervision rather than leaving them in the hands of national authorities would help restore confidence in the banking system.

Second, to create an even playing field, the risk premium on the borrowing costs of countries that abide by the rules will have to be removed. That could be accomplished by converting most sovereign debt into eurobonds; countries would then have to issue their own bonds with collective action clauses and pay the risk premium only on the amounts exceeding the Maastricht criteria. The first step could and should be taken immediately at Thursday’s summit; the second will have to wait. The German public is a long way from accepting it; yet it is needed to re-establish a level playing field. This has to be made clear to give deficit countries it.

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