8 ms·

Despite the obvious immediate consequences, this is not the most important Euronews of the day. This is it: https://www.reuters.com/markets/europe/ecb-unveils-n

by toyg 4y ago

Despite the obvious immediate consequences, this is not the most important Euronews of the day. This is it: https://www.reuters.com/markets/europe/ecb-unveils-new-tpi-anti-fragmentation-instrument-2022-07-21/ https://www.reuters.com/markets/europe/ecb-unveils-new-tpi-a... The TPI is another step forward towards the ECB getting real FED-like powers and centralizing debt. We live in historic times.

mywacaday 4y ago
Could someone explain what the impact and issues of TPI will be?
- PaywallBuster 4y ago
  PIGS (Portugal, Italy, Greece, Spain, missing anything here?) have high debt For simplification let's say they spend 10% of their anual budget servicing debt at an average of 5% interest rate If the base interest rate rises by 50 bps, you could argue the average debt held by PIGS would eventually rise by the same amount, _at least_! So now you have 5.5% interest rates, which is a 10% increase So the anual budget used to service the debt would also increase by 10%, from 10% to 11% By buying bonds from these countries you pressure the yields down
  - spaniard89277 4y ago
    Yeah but ECB creates incentives for ballooning current expenditure. At least in Spain, the government chooses helicoptering money over investment every single time. Or prestige projects (High Speed Rail) over practical ones (freight corridors with no so fast trains for people?), higher salaries for public employees (already high compared to private economy), public pensions, etc. The only demands seems to be higher taxes every year for everyone else. No optimization, just raising and raising taxes every time. This is not sustainable. Savings and income are taking a nosedive for everyone who's not sucking into the public budget. This situation is going to explode, and it's going to be ugly, not only for us. I'm pretty worried about it, honestly. Meanwhile half the country is cheering because the government is very good at selling their narratives and cooking the stats. The reality is we're getting poorer pretty fast. Maybe germans have some fucking great plan because in 10 years they won't sell many cars here.
    - turbinerneiter 4y ago
      > Maybe germans have some fucking great plan because in 10 years they won't sell many cars here. They are trying to build cars there. Germany's trade surplus also leads to German companies investing more money abroad than at home. Also, what is Germany supposed to do? What are they doing wrong? EZB is not controlled by Germany, Germany in fact always complained about the low interest rates.
      - RobertoG 4y ago
        What Germany could have done is to accept a change in the treaties for a real fiscal capacity at the European level. But, instead of that, Germany preferred to enjoy access to a common market and devaluated Mark (that is basically what the Euro is) while pontificating from a high horse. Instead of a functional monetary union we get this mess. And now we all have to be solidary with Germany energy problems. We will see.
        petre 4y ago
        > And now we all have to be solidary with Germany energy problems I this it's still better than Germany importing Russian gas. Their whole decarbonization strategy was based on Russian gas. This is how we ended up with gas labelled as "green". If you don't like'em, don't buy German cars, buy Seat. Technically also a German car built in Spain. At least you keep the factory workers employed.
        RobertoG 4y ago
        That's your proposed solution? I shouldn't drive a BMW? I think I will aim for a political solution if you don't mind. There are two possibilities, a functional monetary union and a really democratic union or every country goes its way. Both work for me.
        petre 4y ago
        Yeah, that's one way to put pressure on Germany in order to obtain a political solution. If you go to Greece, almost every food product is labelled with ελληνικό προϊόν = greek product, because they do not buy food from Lidl or German beer. Cars? They usually buy Toyotas, French cars (PSA) or Italian FCA.
  - fulafel 4y ago
    From a currency area / international trade POV it's about the fundamental problems of having a common currency used among countries who have no common fiscal policy[1]. If Greece and Germany had their own currencies, the exchange rates set by the free forex markets would have fixed many of the curernt problems and their trade balances would be neutral, but instead Germany has been running high trade surpluses and Greece has had high trade deficits (leading to debt) due to how the euro floats, and the central bank interest rate instrument is blunt and applies equally to all currency union countries. See eg https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/06/24/revenge-of-the-optimum-currency-area/ https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/0... for some history of how this wasn't really unexpected. Interestingly in that article higher inflation is seen as a potentially promising tool: "[T]he burden of adjustment might be substantially less if the overall Eurozone inflation rate were higher, so that Spain and other peripheral nations could restore competitiveness simply by lagging inflation in the core countries" [1] The EU budget is tiny compared to national budgets (or eg federal budget in the US), < 3% of the EU GDP.
    - eru 4y ago
      The nominal exchange rate is almost immaterial here. It's the 'real' exchange rate that matters for net trade. And that's almost completely a function of the rate of saving. But, do compare https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-...
  - patrickk 4y ago
    Ireland was in the original PIIGS group[1] after the insane bank bailout in 2008, which skyrocketed debt levels. They've fallen since[2]. [1] https://en.wikipedia.org/wiki/PIGS_(economics) https://en.wikipedia.org/wiki/PIGS_(economics) [2] https://tradingeconomics.com/ireland/government-debt-to-gdp https://tradingeconomics.com/ireland/government-debt-to-gdp
    - TurkishPoptart 4y ago
      To my understanding, they've since whored themselves out to Apple and Pfizer as a tech tax haven.
      - patrickk 4y ago
        That’s been going on for far longer than 2008 and isn’t connected with the bank bailout.
  - someloser 4y ago
    Could it have been possible for you to provide your opinion regarding this matter without having gratuitously insulted millions of people for the countries you mention? I could also refer to you as a complete idiot in this discussion but that would not be civil of me would it?
    - PaywallBuster 4y ago
      i'm from one of the aforementioned countries and PIIGS is a common denomination when referring to that group of countries https://en.wikipedia.org/wiki/PIGS_(economics) https://en.wikipedia.org/wiki/PIGS_(economics)
      - helloworld2022 4y ago
      - toyg 4y ago
        I'm from one of the aforementioned countries and there have been diplomatic remonstrations about its use, to the point that respected publications don't use it anymore. It's just blatant casual racism at this point.
      - FartyMcFarter 4y ago
        It used to be common and it's clearly derogatory, since the acronym itself sounds bad, and it was created to describe a negative situation in the first place (often with blame attached).
        londons_explore 4y ago
        However you look at the situation, blame doesn't lay with the individual citizens of any of those countries - it lies with the policies chosen by the countries collective leadership. Insulting political policies is far more acceptable than insulting individuals.
        4y ago
- skippyboxedhero 4y ago
  Bailout for Italy. The discussion around this started last month (iirc) because Italy's yields started rising. Whether the ECB should buy PIIGs debt was a big issue during the Eurocrisis. Iirc, the ECB had to create additional mechanisms, some of those were challenged by courts in member nations, and authority ended up resting outside the ECB (which some nations didn't like because it is basically unaccountable). I believe this scheme, although it will almost certainly be challenged again, attempts to move authority for these decisions within the ECB. Nothing has been fixed (because it can't be fixed with the EU as it is).
  - tialaramex 4y ago
    > the ECB (which some nations didn't like because it is basically unaccountable). Of course that's actually a desirable feature of such institutions. Give them a mission, staff them with technocrats dedicated to the mission, defuse political interference and they'll deliver. The US Supreme Court decided you can't do that (well, in practice, that Democrats can't do that, it will be fine when Republicans do it) but outside the US this is an attractive idea. However Politicians don't learn, they will always see political advantage from meddling with the independent entity, and then be astonished when such meddling backfires badly. Take NICE in the UK. The purpose of NICE is to decide how to spend necessarily limited resources to deliver healthcare. How many profoundly deaf 5 year olds being able to hear is worth one grandparent who lives an extra twelve months? If this new drug is $180 to treat one patient while the generic we're using is $5, what sort of benefits does that new drug need to have to justify the price tag? These are the "death panels" Americans were told to be scared of years ago. But politicians don't care about the general idea of NICE, they care specifically that photogenic Sarah, whose husband happens to work for a news publisher, is dying of a rare illness, and NICE says the $5M drug to cure Sarah's illness isn't "cost effective". Politicians want a photo of them hugging Sarah and promising she'll be OK. They definitely don't want to raise taxes to pay for the drug (higher taxes is unpopular) but they do want that photo (it'd look great on campaign adverts). And hey, the drug maker gives them $50k campaign donation, that's nice. Let's override NICE and divert $5M to get Sarah the drug. Oops, Sarah died anyway, oh well, news moves on. Years ago the Tories introduced a "cancer fund" where for no discernible reason if you had specifically cancer, there was a separate pool of extra money so that they could be shown to be such compassionate people, who really want what's best for everybody. Well, not everybody of course, just people with cancer for some reason. Of course then photogenic people have something that's not cancer and you look really callous because you rejected them. Wow, it'd sure be easier on politicians if these funding decisions were made by some technocrats instead... oh right.
- highwaylights 4y ago
  I found a video that explains it quite well: https://youtu.be/xbiDrzTd8fE https://youtu.be/xbiDrzTd8fE
cloutchaser 4y ago
Isn’t this what the German constitutional court already said was illegal? They are opening a minefield here. Of course they have to, otherwise Italy is bankrupt. But I don’t see the euro lasting another 10-15 years.
- toyg 4y ago
  That's what some said 10 years ago. And 10 years before. And still, here we are. Where there is a will, there is a way. Germany needs the EU more than Italy, in many ways. Particularly with herr Putin knocking at the door. They'll come around.
  - nek28 4y ago
    i.e. they'll change the constitution
    - toyg 4y ago
      There are many ways to skin that cat.
  - drumhead 4y ago
    I wouldn't be too sure about that the German people are rather more attached to the stability of their currency that the EU I'd say.
    - toyg 4y ago
      The stability of their own economy is guaranteed by the Eurozone. Because of the Euro, Germany can run a massive trade imbalance to export their goods. You nuke the Eurozone, and suddenly German goods become massively more expensive for hundreds of millions of people, which will tank their income. The German people are better off subsidizing other Europeans to buy their cars, like Ford did with their workers.
      - xyzzyz 4y ago
zitterbewegung 4y ago
The best way to have people not know about something is to distract people with another announcement.
spaceman_2020 4y ago
When this entire crapshow crumbles down - and it will crumble down eventually - its going to be economic carnage.
- toyg 4y ago
  Sure, and the proletariat will rise. Any day now. /s

by toyg 4y ago

mywacaday 4y ago

Could someone explain what the impact and issues of TPI will be?

PaywallBuster 4y ago
PIGS (Portugal, Italy, Greece, Spain, missing anything here?) have high debt For simplification let's say they spend 10% of their anual budget servicing debt at an average of 5% interest rate If the base interest rate rises by 50 bps, you could argue the average debt held by PIGS would eventually rise by the same amount, _at least_! So now you have 5.5% interest rates, which is a 10% increase So the anual budget used to service the debt would also increase by 10%, from 10% to 11% By buying bonds from these countries you pressure the yields down
- spaniard89277 4y ago
  Yeah but ECB creates incentives for ballooning current expenditure. At least in Spain, the government chooses helicoptering money over investment every single time. Or prestige projects (High Speed Rail) over practical ones (freight corridors with no so fast trains for people?), higher salaries for public employees (already high compared to private economy), public pensions, etc. The only demands seems to be higher taxes every year for everyone else. No optimization, just raising and raising taxes every time. This is not sustainable. Savings and income are taking a nosedive for everyone who's not sucking into the public budget. This situation is going to explode, and it's going to be ugly, not only for us. I'm pretty worried about it, honestly. Meanwhile half the country is cheering because the government is very good at selling their narratives and cooking the stats. The reality is we're getting poorer pretty fast. Maybe germans have some fucking great plan because in 10 years they won't sell many cars here.
  - turbinerneiter 4y ago
    > Maybe germans have some fucking great plan because in 10 years they won't sell many cars here. They are trying to build cars there. Germany's trade surplus also leads to German companies investing more money abroad than at home. Also, what is Germany supposed to do? What are they doing wrong? EZB is not controlled by Germany, Germany in fact always complained about the low interest rates.
    - RobertoG 4y ago
      What Germany could have done is to accept a change in the treaties for a real fiscal capacity at the European level. But, instead of that, Germany preferred to enjoy access to a common market and devaluated Mark (that is basically what the Euro is) while pontificating from a high horse. Instead of a functional monetary union we get this mess. And now we all have to be solidary with Germany energy problems. We will see.
      - petre 4y ago
        > And now we all have to be solidary with Germany energy problems I this it's still better than Germany importing Russian gas. Their whole decarbonization strategy was based on Russian gas. This is how we ended up with gas labelled as "green". If you don't like'em, don't buy German cars, buy Seat. Technically also a German car built in Spain. At least you keep the factory workers employed.
        RobertoG 4y ago
        That's your proposed solution? I shouldn't drive a BMW? I think I will aim for a political solution if you don't mind. There are two possibilities, a functional monetary union and a really democratic union or every country goes its way. Both work for me.
        petre 4y ago
        Yeah, that's one way to put pressure on Germany in order to obtain a political solution. If you go to Greece, almost every food product is labelled with ελληνικό προϊόν = greek product, because they do not buy food from Lidl or German beer. Cars? They usually buy Toyotas, French cars (PSA) or Italian FCA.
- fulafel 4y ago
  From a currency area / international trade POV it's about the fundamental problems of having a common currency used among countries who have no common fiscal policy[1]. If Greece and Germany had their own currencies, the exchange rates set by the free forex markets would have fixed many of the curernt problems and their trade balances would be neutral, but instead Germany has been running high trade surpluses and Greece has had high trade deficits (leading to debt) due to how the euro floats, and the central bank interest rate instrument is blunt and applies equally to all currency union countries. See eg https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/06/24/revenge-of-the-optimum-currency-area/ https://archive.nytimes.com/krugman.blogs.nytimes.com/2012/0... for some history of how this wasn't really unexpected. Interestingly in that article higher inflation is seen as a potentially promising tool: "[T]he burden of adjustment might be substantially less if the overall Eurozone inflation rate were higher, so that Spain and other peripheral nations could restore competitiveness simply by lagging inflation in the core countries" [1] The EU budget is tiny compared to national budgets (or eg federal budget in the US), < 3% of the EU GDP.
  - eru 4y ago
    The nominal exchange rate is almost immaterial here. It's the 'real' exchange rate that matters for net trade. And that's almost completely a function of the rate of saving. But, do compare https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-strangulation-mechanism/ https://marketmonetarist.com/2015/07/14/the-euro-a-monetary-...
- patrickk 4y ago
  Ireland was in the original PIIGS group[1] after the insane bank bailout in 2008, which skyrocketed debt levels. They've fallen since[2]. [1] https://en.wikipedia.org/wiki/PIGS_(economics) https://en.wikipedia.org/wiki/PIGS_(economics) [2] https://tradingeconomics.com/ireland/government-debt-to-gdp https://tradingeconomics.com/ireland/government-debt-to-gdp
  - TurkishPoptart 4y ago
    To my understanding, they've since whored themselves out to Apple and Pfizer as a tech tax haven.
    - patrickk 4y ago
      That’s been going on for far longer than 2008 and isn’t connected with the bank bailout.
- someloser 4y ago
  Could it have been possible for you to provide your opinion regarding this matter without having gratuitously insulted millions of people for the countries you mention? I could also refer to you as a complete idiot in this discussion but that would not be civil of me would it?
  - PaywallBuster 4y ago
    i'm from one of the aforementioned countries and PIIGS is a common denomination when referring to that group of countries https://en.wikipedia.org/wiki/PIGS_(economics) https://en.wikipedia.org/wiki/PIGS_(economics)
    - helloworld2022 4y ago
    - toyg 4y ago
      I'm from one of the aforementioned countries and there have been diplomatic remonstrations about its use, to the point that respected publications don't use it anymore. It's just blatant casual racism at this point.
    - FartyMcFarter 4y ago
      It used to be common and it's clearly derogatory, since the acronym itself sounds bad, and it was created to describe a negative situation in the first place (often with blame attached).
      - londons_explore 4y ago
        However you look at the situation, blame doesn't lay with the individual citizens of any of those countries - it lies with the policies chosen by the countries collective leadership. Insulting political policies is far more acceptable than insulting individuals.
        4y ago
skippyboxedhero 4y ago
Bailout for Italy. The discussion around this started last month (iirc) because Italy's yields started rising. Whether the ECB should buy PIIGs debt was a big issue during the Eurocrisis. Iirc, the ECB had to create additional mechanisms, some of those were challenged by courts in member nations, and authority ended up resting outside the ECB (which some nations didn't like because it is basically unaccountable). I believe this scheme, although it will almost certainly be challenged again, attempts to move authority for these decisions within the ECB. Nothing has been fixed (because it can't be fixed with the EU as it is).
- tialaramex 4y ago
  > the ECB (which some nations didn't like because it is basically unaccountable). Of course that's actually a desirable feature of such institutions. Give them a mission, staff them with technocrats dedicated to the mission, defuse political interference and they'll deliver. The US Supreme Court decided you can't do that (well, in practice, that Democrats can't do that, it will be fine when Republicans do it) but outside the US this is an attractive idea. However Politicians don't learn, they will always see political advantage from meddling with the independent entity, and then be astonished when such meddling backfires badly. Take NICE in the UK. The purpose of NICE is to decide how to spend necessarily limited resources to deliver healthcare. How many profoundly deaf 5 year olds being able to hear is worth one grandparent who lives an extra twelve months? If this new drug is $180 to treat one patient while the generic we're using is $5, what sort of benefits does that new drug need to have to justify the price tag? These are the "death panels" Americans were told to be scared of years ago. But politicians don't care about the general idea of NICE, they care specifically that photogenic Sarah, whose husband happens to work for a news publisher, is dying of a rare illness, and NICE says the $5M drug to cure Sarah's illness isn't "cost effective". Politicians want a photo of them hugging Sarah and promising she'll be OK. They definitely don't want to raise taxes to pay for the drug (higher taxes is unpopular) but they do want that photo (it'd look great on campaign adverts). And hey, the drug maker gives them $50k campaign donation, that's nice. Let's override NICE and divert $5M to get Sarah the drug. Oops, Sarah died anyway, oh well, news moves on. Years ago the Tories introduced a "cancer fund" where for no discernible reason if you had specifically cancer, there was a separate pool of extra money so that they could be shown to be such compassionate people, who really want what's best for everybody. Well, not everybody of course, just people with cancer for some reason. Of course then photogenic people have something that's not cancer and you look really callous because you rejected them. Wow, it'd sure be easier on politicians if these funding decisions were made by some technocrats instead... oh right.
highwaylights 4y ago
I found a video that explains it quite well: https://youtu.be/xbiDrzTd8fE https://youtu.be/xbiDrzTd8fE

cloutchaser 4y ago

Isn’t this what the German constitutional court already said was illegal? They are opening a minefield here. Of course they have to, otherwise Italy is bankrupt. But I don’t see the euro lasting another 10-15 years.

toyg 4y ago
That's what some said 10 years ago. And 10 years before. And still, here we are. Where there is a will, there is a way. Germany needs the EU more than Italy, in many ways. Particularly with herr Putin knocking at the door. They'll come around.
- nek28 4y ago
  i.e. they'll change the constitution
  - toyg 4y ago
    There are many ways to skin that cat.
- drumhead 4y ago
  I wouldn't be too sure about that the German people are rather more attached to the stability of their currency that the EU I'd say.
  - toyg 4y ago
    The stability of their own economy is guaranteed by the Eurozone. Because of the Euro, Germany can run a massive trade imbalance to export their goods. You nuke the Eurozone, and suddenly German goods become massively more expensive for hundreds of millions of people, which will tank their income. The German people are better off subsidizing other Europeans to buy their cars, like Ford did with their workers.
    - xyzzyz 4y ago

zitterbewegung 4y ago

The best way to have people not know about something is to distract people with another announcement.

spaceman_2020 4y ago

When this entire crapshow crumbles down - and it will crumble down eventually - its going to be economic carnage.

toyg 4y ago
Sure, and the proletariat will rise. Any day now. /s