{"id":1609,"date":"2012-01-27T14:40:52","date_gmt":"2012-01-27T12:40:52","guid":{"rendered":"https:\/\/clusterfamilyoffice.com\/blog\/?p=1609"},"modified":"2012-01-27T14:40:52","modified_gmt":"2012-01-27T12:40:52","slug":"las-3-herramientas-elementales-de-la-ue","status":"publish","type":"post","link":"https:\/\/clusterfamilyoffice.com\/en\/las-3-herramientas-elementales-de-la-ue\/","title":{"rendered":"The EU\u2019s three basic tools"},"content":{"rendered":"

As we mentioned a couple of weeks ago in \u00abThe Eurobond has arrived and nobody knows how it happened (2)\u00bb<\/a>, the ECB\u2019s three-year long-term refinancing operation (LTRO) has radically transformed the European landscape. The first round of these Long-Term Refinancing Operations, and the second scheduled for February, have allayed the risk of an imminent collapse of the EU\u2019s financial system. However, it must not be overlooked that whilst the immediate threat of collapse has been averted, this does not in any way solve the underlying problem; yet it is true that it does go some way towards easing the hellish conditions in which the European banking sector finds itself. We now face three years of a tortuous journey before the financial collapse comes crashing down on us once again. And the markets have been pricing this in since just before last Christmas. Not only in the form of rising share prices, but \u2013 and above all \u2013 in the form of a certain return to Mr Market\u2019s classic behaviour and trends, something that only the world\u2019s best fund managers know how to capitalise on sufficiently.<\/p>\n

At this stage, the million-dollar question is this: what must Europe (Merkozy) do over the next three years to ensure that, when the LTROs mature, we do not return to the hell of the EU\u2019s imminent collapse?<\/p>\n

In view of the dire macroeconomic situation currently facing Europe, due to the excessive debt accumulated over the last decade, three traditional tools must be employed:<\/p>\n

    \n
  1. Drastic cuts to public spending and widespread austerity against a backdrop of excessive debt.<\/li>\n
  2. The increase in the money supply as a trigger for an internal devaluation of the euro.<\/li>\n
  3. The reforms needed to achieve a substantial increase in competitiveness and productivity.<\/li>\n<\/ol>\n

    But the crux of the matter is that these three tools must be used simultaneously, like communicating vessels. And it is more than reckless to employ any one of them without ensuring that all three are applied and utilised in a coordinated and appropriate manner. To get out of the European quagmire, we must cut spending, introduce a European quantitative easing programme to help devalue the euro, and gain competitiveness through \u2013 unfortunately \u2013 a reduction in working standards, in other words, working more for less. In short, the loss of the welfare state. Only in this way do we stand a chance of regaining it in a few decades\u2019 time.<\/p>\n

    The danger is that Germany is forcing the rest of Europe \u2013 particularly the periphery, which is the most insolvent part of the Old Continent \u2013 to make very significant cuts to public spending. But the reason these cuts are so drastic is precisely because there have been no cuts to on its own initiative<\/em> in recent years. Political corruption and the pursuit of votes to keep governments in power have prevented public spending from being gradually reduced over the last three or four years. And it is this lack of responsibility on the part of peripheral governments that is now forcing such drastic and harsh cuts on society. Consequently, whilst Germany is the one imposing them today in its role as the EU\u2019s budgetary policeman, it is by no means the cause of the cuts being so severe.<\/p>\n

    \"\"By contrast, Angela Merkel\u2019s government is indeed responsible for the fact that the ECB has not implemented quantitative easing along the lines of the US Federal Reserve. It has not allowed the money supply to be increased (at least not directly or officially), even though this stifles the prospects for recovery in the periphery. The question that begs to be asked is: why? Quite simply because the German economy does not need it: the euro\u2019s exchange rate allows it to export sufficiently, its economy is growing, it is not experiencing deflation, and public opinion would not look favourably upon tailoring economic measures to the needs of poorer countries.<\/p>\n

    But let us make no mistake. We find ourselves at a dead end because of our own short-sightedness. And we must also acknowledge our own responsibility for failing to make use of the third tool. Because Germany is not preventing us from carrying out far-reaching labour market reforms, nor from working harder for less \u2013 no. In that regard, it is we who are turning a blind eye.<\/p>\n

    It\u2019s always so easy to blame others for our misfortunes, and how hard it is to take responsibility for ourselves, isn\u2019t it? That cuts to healthcare and education are Merkel\u2019s fault; that the risk premium is soaring because the ECB isn\u2019t buying our bonds; that Greece is teetering on the brink because the creditor banks won\u2019t accept a sufficiently large debt write-off; that Berlusconi can no longer govern democratically because of the dictatorship imposed by the markets, that Bar\u00e7a have won 13 of the last 15 titles contested and Real Madrid only 3 because the referees are biased against the Merengues, and so on and so forth. The fact is that we always tend to look for someone else to blame, even though in most cases we\u2019d be better off if we focused on our own responsibility.<\/p>\n

    Of the three tools mentioned above, we are using the first out of necessity, the second has been banned for the time being, and the third we are simply and irresponsibly ignoring. So we are unlikely to make the most of the three years of infinite, cheap liquidity provided by the LTROs offered by Mario Draghi. The fact is that Europe continues to make economic decisions tailored to Germany\u2019s needs, but let\u2019s not forget that the referee isn\u2019t always to blame. There must be a reason for it.<\/p>\n

    P.S. It never ceases to amaze me that even the very The US should drastically cut its military budget<\/a>, and yet Rajoy declared in his first week as Prime Minister that no expense would be spared for the Spanish armed forces, and that there would be absolutely no cuts to the Ministry of Defence. What a country\u2026<\/p>","protected":false},"excerpt":{"rendered":"

    Como dijimos ya hace un par de semanas en \u00abEl Eurobono ha venido y nadie sabe c\u00f3mo ha sido (2)\u00bb, el cr\u00e9dito ilimitado del BCE con vencimiento a 3 a\u00f1os (LTRO) ha cambiado radicalmente el escenario europeo. La primera ronda de estas Operaciones de Refinanciaci\u00f3n a Largo Plazo, y la segunda prevista para Febrero, han […]<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[45,41,40,52,37],"tags":[],"class_list":["post-1609","post","type-post","status-publish","format-standard","hentry","category-asesoramiento-deportistas-artistas","category-economia-y-finanzas","category-gestion-financiera","category-asesoramiento-patrimonial-multi-family-office","category-reflexion"],"_links":{"self":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1609","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/comments?post=1609"}],"version-history":[{"count":0,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/posts\/1609\/revisions"}],"wp:attachment":[{"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/media?parent=1609"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/categories?post=1609"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/clusterfamilyoffice.com\/en\/wp-json\/wp\/v2\/tags?post=1609"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}