8/10/2013: German Voters Go For Status Quo... Redux: Sunday Times September 29, 2013

This is an unedited version of my Sunday Times column from September 29, 2013.


By any measure, last Sunday's German elections highlighted a resounding failure of the country electorate to connect with reality. Despite returning a number of historical outcomes, the voters reaffirmed the passive-conservative leadership mandate exercised by Angela Merkel since 2009. As the result, German policies are now likely to drift even farther away from the immediate needs of the euro area periphery, risking a renewal of the euro area crisis and a slowdown in the already less-than ambitious speed of European reforms. None of this is good news for Ireland.

The historical nature of the 2013 German elections is highlighted by the fact that Angela Merkel became the first euro area leader to be reelected as the head of state since the beginning of the Great Recession. And she has done it twice: first some 12 months into the crisis in 2009 and now 5 years from its onset. Ms. Merkel won the highest number of votes for her CDU/CSU party in 23 years. And she became the first German leader since the golden days of Konrad Adenauer back in 1961 to personally dominate the elections, instead of standing in the shadow of her party. Individually, all of these are rare events in modern German history. Taken together, they are probably unprecedented.

But herein lies the problem for all of us living outside Germany. The elections of 2013 have produced a strong mandate for doing nothing new when it comes to either the euro area or the larger Union reforms. The Chancellor re-elect retook the Bundeskanzleramt on a mandate of being a 'safe pair of hands'. The campaign her party waged focused on such important topics as charging foreign drivers for using autobahns. Instead of debating the core issues faced by the EU, and the role of Germany in this mess, voters largely engaged in navel-gazing. Satisfied with their relatively well-performing economy and receding immediate danger to the euro, they endorsed the leadership devoid of ideas, alternative views and aspirations. Not surprisingly, philosopher Jurgen Habermas declared the 2013 general election campaign a "collective failure" of the elites.

This means that the German elections left the core problems of the euro crisis unaddressed, raising the specter of renewed uncertainty about the future of the common currency area. This concern became immediately visible this week.

On Monday, ECB's Mario Draghi rushed to compensate for the policy paralysis signaled out of Germany by stating that the ECB is ready to deploy a new round of quantitative easing in the form of the third Long-Term Refinancing Operations (LTRO3). To remind you, the first two rounds of LTROs were the ECB’s ‘pre-nuclear option’ response to strategic threats to the euro area economy in late 2010-early 2011. The ‘nuclear option’ was the subsequent announcement of the stand-by quantitative easing programme, known as Outright Monetary Transactions (OMT). Mr. Draghi mentioning the prospect of renewing the LTRO scheme suggests that the ECB expects no change in euro area policies in the aftermath of last week’s elections.

Acknowledging this, Draghi also tried to push aside the pesky issue of the Greek Bailout 3.0. And in a direct reflection of the Berlin’s preferences, Draghi also downplayed the possibility of the ESM being licensed to provide financing cover for future bank failures.

Mr Draghi’s precautionary moves were timed perfectly. Following the elections, sovereign yields on all peripheral countries’ bonds rose relative to German bunds. Credit default swaps – insurance contracts underwriting sovereign bonds – also crept up. The markets are not buying the ‘return to status quo’ story as good news. This was contrasted by the domestic news which saw the German economic sentiment, as measured by the CESIfo index of economic conditions rise for the third month in a row. This marks fifteenth consecutive quarter of the CESIfo index reading above historical average. In contrast, euro area economic conditions index has been stuck below its historical average levels for eight quarters in a row through this September.

Since 2009 elections, Chancellor Merkel held back from directly leading the euro area and instead opted repeatedly to wait for an escalation of the crises before responding with un-prepared, often ad hoc and wrong-footed solutions. Best examples of this approach to leadership are the EU's failures in Cyprus and Greece. Both are directly linked to Ms. Merkel’s prevarication in the face of escalating crises. All were driven by swings in domestic public opinion, rather than by any cohesive principles.

For Ireland, this mode of leadership spells lack of progress on key issues.

Gauging German public opinion there is currently zero appetite to shift away from the pre-elections status quo in which the Irish crisis is seen as largely self-induced and peripheral to German interests. This means that Germany is likely to continue supporting Irish debt sustainability rhetorically, while opposing practical resolution of the debt overhang. This week, Ms. Merkel gave another loud endorsement to Irish Government policies during the crisis. As she did so, the Irish Government – usually not known for its skeptical pragmatism – was actively pushing the timeline for banking debts problem resolution out into the later months of 2014. My gut feeling is that we can expect this timeline to stretch beyond 2015. Instead of allowing restructuring of our banking debts, Berlin will nod approvingly to a precautionary line of credit for Ireland via set-aside stand-by facility at the ESM. This credit will be provided on current ESM funding terms, some 1 percent below the cost of IMF funding and with longer maturities. Which is the good news.

In exchange for this token gesture we will be required to strictly adhere to fiscal adjustment targets for 2015. We will be further subjected to a new multi-annual fiscal programme stretching into 2018-2020 to be supervised by the EU Commission. ECB – by proxy, the German government – will be watching from the shadows.

Meanwhile, as Mr. Draghi statement this week indicates, Germany will block ESM from having any powers in dealing with future banking crises. Our retrospective banks debt deal will then have to wait until a new funding facility, most likely administered by the ECB, comes into place. Pencil that for sometime in 2016. Pushing legacy debts incurred by the Exchequer as the result of rescuing our banks into the hands of the ECB is likely to cost us. Frankfurt can, and potentially will, demand something in return for this. One thing the ECB can ask for is accelerated sales of the Central Bank-held Government bonds (the fallout from the Promissory Notes deal done earlier this year).  The ECB already has the power to do so. It also has a direct incentive: the bonds are set against our banks borrowings from the euro system. Of course, this will mean that we will be trading one debt for another, as accelerated sales of bonds will erode the temporary fiscal ‘savings’ achieved by the Promo Notes restructuring.

But the cost of the EU/German ‘assistance’ for Ireland will most likely extend further than bonds sales acceleration and new fiscal targets setting. German political agenda is well-anchored to continued saber-rattling on the need for corporate tax harmonization across the EU. With the 2009-2011 Franco-German tax harmonisation initiative all but dead, the focus in the next two-three years will shift toward advancing the consolidated common corporate tax base (CCCTB) proposals that suit German interests more than any other form of tax coordination. Based on her record to-date, Ms. Merkel is a fan of the CCCTB as are all of her potential coalition partners and the German voters.

German elections are also promising to create less certainty as to the structural reforms in the European Union space. Last Sunday’s results produced strong votes for the anti-euro party, Alternative fuer Deutschland (AfD). The party also did well in the previously held local elections. The new Merkel-led coalition will have to show caution when facing any prospect of further harmonisation and consolidation of power in Brussels.

When it comes to structural reforms, German public prefers for euro area to focus on specific hard fiscal targets and on replicating Germany's own structural reforms of the 1990s. While such reforms can be beneficent to the euro area peripheral states, for Ireland they offer only marginal gains. German reforms of the 1990s have focused on two core policy pillars: increasing flexibility of the labour markets and decreasing the burden of the welfare state. These came at a cost of continued consolidation of German economy around larger enterprises and suppression of domestic demand and household investment.

Ireland today requires some reforms in the social welfare system. But we also need to break up our dominant market players in the domestic sectors and to increase our households’ spending and investment.

In short, in the wake of the German elections, there is preciously little that Ireland can expect in terms of the European support for our recovery. Europe, with German blessing, will most likely lend us a hand to help us out of the 'safe' boat of the Troika programme. Thereafter, swimming in the turbulent waters of the Eurozone crisis will be up to us. Let's hope Budget 2014 provides generously for flotation vests.

BOX-OUT:

Marking the fifth anniversary of the Banking Guarantee of September 2008, there are plenty of stocktaking exercises going around. Yet, for all the ‘Fail’ marks being rightly handed out to the Guarantee, all signs in the streets suggest we have learned next to nothing from our past errors. This week offers at least two such examples. Firstly, the crisis showed that a non-transparent system of monitoring and managing financial risks will result in the connected-few gaming the entire system. This week, Minister Noonan intervened in the process of winding down the IBRC, bending the rules that normally apply to company liquidations. Granting anonymity to the funders of the toxic banks comes as a priority in this country. Unintended consequence of this is that it also perpetuates the cronyist relationship between the financial services and the state – exactly the outcome we should have learned to avoid. Secondly, we know that principles-based regulations require swift, robust and unambiguous enforcement. Also this week, the Central Bank effectively shut the door on any further investigations into Anglo dealings with the regulators that could have arisen from the infamous Anglo Tapes. Five years in, there are zero prosecutions, and scores of closed investigations. To paraphrase Bon Jovi’s famous refrain: the less we learn, the more things stay the same…

23/8/2012: More time for Greece is not an asnwer

As Greek PM, Samaras, heads for talks with Angela Merkel this Friday, here's why 2 more years won't work for Greece: link here.

2/12/2011: Euro crisis: wrong medicine for a misdiagnosed patient

There's been much talk about the fiscal union and ECB money printing as the two exercises that can resolve the euro area crises. The problem is that all the well-wishers who find solace in these ideas are missing the very iceberg that is about to sink the  Eurotanic.
 (image courtesy of the ZeroHedge.com):

Let's start from the top. Euro area's problem is a simple one:

• There is too much debt - public and private - as detailed here, and
• There is too little growth - including potential growth - as detailed here.

Oh, and in case you think that discipline is a cure to debt, here's the austerity-impacted expected Government debt changes in 2010-2013, courtesy of the OECD:

In other words, it's not the lack of monetary easing or fiscal discipline, stupid. It's the lack of dynamism in European economy.

Let me explain this in the context of Euro area policies proposals.

• The EU, including member states Governments, believes that causality of the crisis follows as: Loss of market confidence leads to increased funding cost of debt, which in turn causes debt to become unsustainable, which in turn leads to the need for austerity and thus reduces growth rates in the Euro area economies.
• My view is that low growth historically combined with high expectations in terms of social benefits have resulted over the decades in a build up of debt, which was not sustainable even absent the economic recession. Economic recession caused the tipping point in debt sustainability beyond which markets lost confidence in European fundamentals both within the crisis environment, but also, crucially, beyond cyclical recession. My data on structural deficits (linked above) proves the last point.

So while Europe believes that its core malaise is lack of confidence from the markets, I believe that Europe's real disease is lack of growth and resulting high debt levels. Confidence is but a symptom of the disease. 

You can police fiscal neighborhood as much as you want (and some policing is desperately needed), but you can't turn European economy from growth slum to growth engine by doing so. You can also let ECB buy all of the debt of the Euro area members, but short of the ECB then burning the Government bonds on a massively inflationary pyre, you can't do away with the debt overhang. Neither the Euro-bonds (opposed by Germany) nor warehousing these debts on the ECB balance sheet (opposed by Germany & the ECB) will do the trick. Only long-term growth can. And in that department, Europe has no track record to stand on.

Take Italy as an example. Charts below illustrate the country plight today and into 2016. I use two projections scenarios - the mid-range one is from the IMF WEO for September 2011, the adverse one is incorporating OECD forecasts of November 2011, plus the cost of funding Italian debt increasing by 100bps on the current average (quite benign assumption, given that it has increased, per latest auctions by ca 300bps plus).

As chart below shows, Italy is facing a gargantuan-sized funding problem in 2012-2016. Note that the time horizon chosen for the assessment of fiscal sustainability is significant here. You can take two assumptions - the implicit assumption behind the Euro area policy approach that the entire problem of 'lack of markets confidence' in the peripheral states can be resolved fully by 2013, allowing the peripheral countries access to funding markets at costs close to those before the crisis some time around 2013-2014. Or you can make the assumption I am more comfortable with that such access to funding markets for PIIGS is structurally restricted by their debt levels and growth fundamentals. In which case, that date of regaining reasonable access to the funding is pushed well past 2015-2016.

Government deficits form a significant part of the above debt problem in Italy (see below), but what is more important is that even with rosy austerity=success model deployed by the IMF, the rate of decline in Italian public debt envisioned in 2013-2016 is abysmally small (again, see chart below). This rate of decline is driven not by the lack of austerity (deficits are relatively benign), but by the lack of economic growth that deflates debt/GDP and deficit/GDP ratios and contributed to nominal reductions in both debt and deficits.

But the proverbial rabbit hole goes deeper, in the case of Italy. IMF projections - made before September 2011 - were based on rather robust euro area-wide growth of the first quarter of 2011. Since then two things have happened: 

1. There is a massive slowdown in growth in Italy and across the euro area (see here), and
2. Cost of funding Italian debt has risen dramatically (see the second chart below).

These two factors, imperfectly reflected in the forecasts yield my estimation for Italian fiscal sustainability parameters under the 'adverse' scenario.

The above shows why, in the case of Italy, none of the solutions to the crisis presented to-date will work. Alas, pretty much the same applies to all other peripheral countries, including Ireland.

Which means that the latest round of euro area policies activism from Merkozy is simply equivalent to administering wrong medicine in greater doses to the misdiagnosed patient. What can possibly go wrong here?

Economics 22/05/2010: More nonsensical German proposals

Thursday was another day of great ideas from Berlin on “How to wreck world financial infrastructure while earning little political capital: the Angela Merkel Way”.

For a couple of weeks now, global investors have shown Madam Chance-a-lot (oops… Chancellor) that Greek Tragedy rule 1 applies: If you want to write a tragedy, set up a story where an irrational, arrogant and morally reprehensible sovereign challenges the Gods. Inevitably, in Greek classical tradition, the Gods win, while having a laugh. Mrs Merkel’s epic battle with the markets is exactly that. Markets, like Greek deities, are inevitably going to prevail. And Mrs Merkel and the retinue of euro area leaders – bent on ring-fencing their own politically connected banking sectors and shielding them from any meaningful pain for the errors committed in the past – will lose. The only thing that still might be at stake here is the degree of vengeance the markets will deal to the EU, should the euro zone embrace German proposals. With every new ‘bright idea’ on punishing the markets coming, the likelihood of an awesome spectacle of the Gods punishment meted out to Europe is rising too.


Following new taxes and short selling ban (covered by me yesterday) Mrs Merkel has now unveiled her third pillar of the reform strategy: a European ratings agency. It’s bonkers, folks. Just as the rest of the European financial sector reforms proposals so far:

• EU Rating Agency will never be independent of political interference, so no one, save for the institutionalised writers in the EU official press will ever pay any attention to whatever the agency might produce. In so far as delivering anything usable by the market or by anyone, save Eurocrats, the EURA will be a complete waste of taxpayers’ money.
• EU premise for launching EURA will be as crooked as an old local authorities politico with development firm in his backyard. Germany has departed on the EURA trip from the assertion that Euro needs an agency that can honestly upraise the extent of fiscal risks on sovereign balance sheets. Were EURA to do so, its ratings will have to be even gloomier than those of the Big 3 private rating agencies.
• EURA is unlikely to have any serious competency in what it does because unlike the Big 3 it will never be a rating agency for non-EU sovereign debt. In other words, EURA, having no recognition of non-EU sovereigns, will be forced to look at the EUniverse, a subset of the world bond markets. Which makes a proposal equivalent to simulating a tsunami in a coffee mug.
• And, of course, as any other rating agency, EURA will be no more than a lagging indicator, which means that its musings on bond valuations are going to be read only by retired intellectuals, plus pensions funds with automatic quality mandates. And even then, EURA will be forced to follow, in the news hierarchy, the Big 3.
  

In response to Mrs Merkel’s expensive (and it is expensive, from the point of view of European economy and taxpayers – see here) populism, Canadian finance minister told Mrs Merkel into her face last night that his country would not take part in either one of the three European policy follies. You see, Canada has a healthy banking system. And it has the intellectual and policy capital to understand that finance is crucial to country economic prosperity.

Americans, like Canadians and the Brits, think that the idea of a transaction tax is downright potty. All three have done the right things in trying to reform their banks. The EU, so far, is staunchly refusing to do the same. Why should the sane join the outright gaga club of countries that keep preserving rotten banking system at the expense of the real economy?

Even Finnish finance minister is saying Germany’s short sale ban had surprised everybody, unpleasantly. Finns can see through the German plans to the point where a Tobin tax on financial services will exert adverse selection against smaller exchanges in favour of the larger ones (again, see more on this here).

Why? Because the problem with financial institutions today has nothing to do with volatility in financial assets prices. It has everything to do with reckless lending by the banks and the willingness of bondholders to underwrite excessive borrowing (including that by the sovereigns). In the real world banks are willing to write poor loans because they and their shareholders and bondholders know that they will be rescued by the state, should things go pear-shape. And, of course, governments always oblige. Look no further than Nama. Wrecking regulatory vengeance on the markets in order to address the problems with the banks – as Mrs Merkel is doing – is hardly a way forward.


Only a massive scale intervention by the ECB, going most likely well beyond simple sterilization of €20 billion of sovereign bonds purchased by the bank so far, has pushed the euro up against the dollar. But at what cost, one might wonder, especially in the environment where deflation is creeping back into the US stats? I don’t have the data on ECB operations this week, but something was certainly hitting the markets for FX and bonds. Of course, sterilizing and supporting currency are two individually costly propositions. But for ECB to engage in this double game for a prolonged period of time will spell significant drying up of the liquidity. It is like an overweight elderly amateur playing alone against, simultaneously, Roger Federer and Rafael Nadal. The result will be painful, quick and devastating.

Sterilized cash can be re-injected into the banks reserves, without cash hitting the streets, but that would only mean more real money being trapped in the liquidity sucking spiral of government financing via ECB lending to the banks. We’ve been there for the last 24 months and it is not pretty.


In addition, there is a pesky issue of the US position. In effect, Japan, China, Germany and the entire euro zone are playing beggar-thy-neighbour game with the US by artificially suppressing the cost of their exports to America. The problem, as I have pointed out before (here) is that this requires US consumers to start borrowing again to sustain massive trade deficits. If this fails to materialise, and it is hard to see how it can, then the entire pyramid scheme of global trade will collapse. In the end, the double dip, this time caused by trade tensions and falling exports, is on the cards for all, as undervalued currencies in the three major powerhouses of global trade will prevent their consumers from expanding their own imports demand.

Such an outcome, however, will be preceded by a significant pain for Europe’s domestic economy. While a 10% devaluation of the Euro against a basket of global currencies can be expected to lead to a significant boost in Euro area economy (ca +0.7% in year one after devaluation and up to +1.8% in year 4), this exports-led growth will be associated with massive increases in the interest rates (+85bps in year one, to +220bps in year 3). These estimates are taken from Econbrowser (here). Obviously, the rest of the world will be just cheering EU and Mrs Merkel in this destruction of economic growth... or not?

Economics 20/05/2010: Germany's new plan for Europe

“Berlin means business” says Spiegel about the latest plans by German Government for an EU-wide revision of fiscal and financial architecture.

This Tuesday, “EU finance ministers announced efforts to both rein in hedge funds operating in Europe and to introduce a tax on financial transactions”.

Wait a second, folks – take Ireland: a sick financial system with plenty of financial services taxes, including a stamp duty on transactions, all the way down to bank cards levies. Has the presence of the Tobin tax here helped to prevent the crisis? Will it work in Europe? Not really. Why? For several reasons:

1. Tax is avoidable by offshoring trades outside the EU. The effect of this will be – higher cost of capital raising for companies, selection bias in favour of larger companies in access to the capital market (AIG advantage anyone?), lower after-tax returns to investors and higher cost of financial services to all of us. Falling listings in Europe and greater state pensions reliance. Which part of this equation makes any economic sense?
2. The tax will not fund sufficient insurance provision against the need for future bailouts. When you think of the magnitude of bailouts we’ve witnessed, the levels of taxation would have to be so high, there will be no financial markets in Europe left.
3. The tax will, however, fund general Government spending in the Eurozone. Which, of course, means more of our money (yes, yours and mine – as long as we have pensions, savings, investments or if we work for companies that have listed shares or have plcs as their clients…) will be going to noble causes of public sector retirement and wages packages, social welfare spending, politically motivated pet projects, and so on.
   
4. The tax will retard economic development in Europe. One of the reason why European banks are so sick is because European companies are heavily reliant on banks lending. European businesses are based on loans, not equity - in other words, they are based on debt. Vast amounts of debt. And when such culture of financing collides with an asset bubble drivers of exuberant expectations, banks balance sheets swell with bad loans. The new tax will only perpetuate this inherently inefficient utilization of equity financing across Europe. Which means less growth, fewer businesses and fewer jobs.

Next, of course, in the line of fire are the hedge funds. They had to be reined in because… no wait, remind me, why exactly? Hedge funds did not cause the current fiscal crisis (they have no control over the Governments’ borrowings and spending), nor did they pollute banks balance sheets or caused the property bubbles. Why are they a target then? Because for European leadership, ‘Doing right’ means ‘Doing politically easy’. Hedgies have no strong lobbyist interest behind them, unlike the banks, property developers, sovereign bondholders, sovereign bond issuers, farmers, trade unions and public 'servants' - all who inhabit the vast ques to the trough of Government subsidies. So here you are – we attack a bystander to pretend that we are tackling the criminal in sight.

After hedgies, came in other imaginary villains. On Tuesday night the EU banned naked short-selling and the trading of naked credit default swaps involving euro-zone debt. Oops.. before Tuesday night we knew what markets were betting on into the future – the short positions revealed actual expectations with the power of having real money put behind them. Now we do not. This, per EU leaders, is some sort of transparency. Socratic cave analogy comes to mind.

The EU ban target two types of trading that “have been blamed for exacerbating the financial crisis and Europe's sovereign debt crisis.” Actually, IMF explicitly said (here) in its report last week that the entire CDS markets - not just short sales in these markets - were not enough to cause the crisis. Never mind - EU leaders know how to deal with independent advice from international experts. Any hope, then, that Mrs Merkel's pipe dream of 'independent budgets oversight' (see below) can come true in this land of pure politicization of everything - from rating agencies, to traders, to investors?

It turns out, folks, that European crisis was, after all, not about absurdly high levels of public debt carried by PIIGS, nor by fraudulent (yes, fraudulent) deception by some Governments of investors about the true extent of national deficits. It was not exacerbated by the decade-long low growth recession across the Euro area, nor by a recent severe depression that afflicted Euro area economies. Nope. The cause of this, per Mrs Merkel & Co, were investors who were betting on all of these factors adding up to an unsustainable fiscal and economic situation in Europe. Off we fighting the evil windmills, then, Don Quixote from Berlin!


Worse than that, on top of the ridiculous policies decisions made over the last two days, Chancellor Merkel has also been working hard “on far-reaching changes to the treaty underpinning Europe's common currency, the euro.” Per Der Speigel, “Merkel would like to see increased monitoring of member states' annual budgets, the introduction of stiff sanctions for those in violation of euro-zone debt rules and the suspension of voting rights in the European Council. Furthermore, Germany wants to establish bankruptcy proceedings for insolvent euro-zone countries.”

Really? I wrote about the actual chances of any of this working to the desired effect in the earlier post (here). But now we have some details to the plan:

“According to the document, Germany would like to see annual budgets in euro-zone countries undergo a "strict and independent check." Berlin proposes that the job be taken over by the European Central Bank or by a collection of economic research institutes.”

Now, the problem with this part is that there are no independent organizations in Europe left. The ECB is now a full hostage to Europe’s push for retaining fiscal sovereignty while maintaining unsustainable prolificacy. ‘Institutes’ Mrs Merkel has in mind are a host of EU-funded ‘Yes, Minister’ organizations that populate the realm of economic policymaking on the continent (with a number of them operating in Ireland). By-and-large, they have no capability of delivering anything of real value, let alone anything independent. Even the likes of the OECD – a very capable organization with some degree of independence – is not free from European political interference.

"Euro-zone member states that do not conform to deficit reduction rules should temporarily be disallowed from receiving structural funds," the draft reads. In extreme cases, that funding could be permanently eliminated.”

Imagine Greece today, receiving €110 billion bailout today, being told, ‘Naughty! We will withhold some €5 billion in funds.” Apart from being unrealistic, this idea is potentially quite dangerous. Structural funds go to finance infrastructure and other longer term investment programmes. Many of these rely on co-funding from the Member States and/or private partners. All have private contractors. Impose this potential penalty and cost of public projects financing will have to rise due to uncertain nature of the funding stream.

Withholding these funds will either be meaningless (if the funds withheld are small, as it will cause no damage and will have no power of prevention) or it will cause an economic mayhem as bills go unpaid and workers lose jobs (in which case the sanction will be undermining the process of fiscal recovery and triggering more bailouts).

In short, the threat is either toothless or self-defeating. Either way – it is a cure that threatens to make the disease incurable.

Two more proposals are mentioned in the Spiegel.

“Earlier this month, Schäuble had mentioned the possibility of suspending member states' votes should they find themselves in violation of European debt rules, an idea which is mentioned in the draft proposal.”

This should make wonders of the EU efforts to strengthen its democratic legitimacy. And would this extend to suspending MEPs powers too? European court judges? Commissioners? Where does the buck stop? Should this come to pass, Italy, Greece… no wait – at 60% debt to GDP level, virtually the entire EU will be suspended (see table here). Who will end up voting in Europe? Germany won’t – its own debt/GDP ratio is 72.5%... Ditto for the deficits benchmark.

Finally, per plan: “Should all else fail, the draft calls for a plan to be established for euro-zone members to declare bankruptcy.”

Err… what? Hold on – bankruptcy? Given that the EU own rules to date have so spectacularly failed to contain debts and deficits from breaching EU-own rules, that would be a collective bankruptcy then… One presumes with Germany in tow?