Ted Auch

There is now very serious talk about a European Central Fund, which would largely be supported by the profligate ways of Eastern and Southern Europe.

I wonder how this EMF would be funded? Would it be as its supporters claim a function of a 1% tax on all money a given EU country has about the Maastricht Treaty Debt and Deficit to GDP requirements? How long would a country have to be above the 60 and 3% thresholds, respectively. I feel as though countries with stout track records would be given substantial temporal leashes while the PIIGS would be put on a spit and roasted within months and prayed upon by speculators. Look if you go ahead with this EMF and the Lisbon Treaty you are opening yourself up to a common currency aggregate that has no ceiling (i.e., a global currency). Talk about too big to fail! Or is it too interconnected to fail?

“The EMF could be run along similar governance lines to the IMF, by having a professional staff remote from direct political influence and a board with representatives from euro-area countries. Just as the existing fund does, the EMF would conduct regular and broad economic surveillance of member countries. But its main role would be to design, monitor and fund assistance programmes for euro-area countries in difficulties, just as the IMF does on a global scale.”

No way does the highlighted part of the above quote from The Economist article happen! We have reached a point as Steven Roach of Morgan Stanley noted in “Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization” where the line between fiscal policy, monetary policy, and politics is imperceptible. It is as if we are redressing the church v. state debate even though we know there is not such thing.

“Countries could, for instance, be charged an annual contribution of 1% of their “excess debt”, the difference between their actual level of public debt and the limit of 60% of GDP agreed on as one of the Maastricht criteria for euro entry. A similar charge could be levied on governments’ excess deficits, the amount exceeding the Maastricht limit of 3% of GDP. Under these parameters the EMF would have accumulated about €120 billion ($163 billion) over the past decade, enough to cover the likely costs of rescuing Greece. These levies are not so big that they make it impossible for offenders to get to grips with their finances. Under this scheme the Greek contribution to an EMF would have been 0.65% of GDP in 2009.”

Another canard. We are being guided by captains that would like to steer the ship towards a single global currency, which as I said would be the ultimate paradox given everyone’s fascination with Too Big To…..(Fill in the blank!).