Eurocrisis: elegant compromise to soften relations between EU and Ireland

I am just listening to the EU press conference of the Eurogroup. I was unable to fully listen to the start of the conference, but what I understand is that all parties involved stand ready to help out Ireland with their banking sector problem. And there would be short and intensive consultation on technical isses. In this way a compromise is reached between the stubborn Irish position (we don't want help as a government) and the EU Commission and ECB concerns (we need to help the Irish out, because their situation may become unsustainable).

Juncker says now: it's up to the Irish. We will help as the Eurogroup to be supportive. As far as the programma and consultations is concerned, the meetings will be with ECB, EC and IMF, so the Eurogroup will not be involved. There's even some humour between Juncker and Rehn now (in the treaty we trust - but the devil is in the details). Still the Commission will not disclose a specific amount of money/support that is considered.

Earlier in the conference, the EFSF boss outlined that he can raise funding in a couple of days. And he noted that there was considerable interest from Asian countries. So the Asians stand ready to help the Irish.


When a government resort to money printing... the end of an era is in sight...

 Well, this week is the week of the spill-over: the US-FOMC decision to finance TReasuries by the FED is leading to:
- China further restricting the imports of money,
- investors that flight into gold, commodities and equity,
- growing criticism for Bernanke,
- who will be defended by Obama with the answer that the growth that the QE-stimuli causes will soon be welcomed by many.

The veteran Junker from Luxemburg, doesn't hesitate to point out on behalf of the Eurozone that while the US blame China to maniupate the exchange rate, it is actually calling the pot a cattle as the US does the same (but by increasing the supply of the dollar). But he can't say that out loud in the G20, because we can witness a number of Euro Member States in the periphery that are stumling into the abyss. Only domestic players invest in Spanish, Iris, Greek or Portuguese government securities. So, before we know, there may be a mini-monetary-earthquake in the Eurozone.

In essence we are now witnessing the definitive beginning of the end for the US as a world power. De United States of America have always been living on credit, which was a powerful motor for themselves as well as the world. Yet, here's the day when empty is empty and the effect is over. The only one not to have noticed it, is the US themselves. During the mortgage crisis we could still say that the external effects of the US crisis for other countries was indirect. With Quantitave Easing the effect is more direct because the US directly exports its problems. It all has the sound to it of empiresand states that are at the end of their existence and try the money injection as measure of last resort.


Bernanke playing with fire and burning his fingers... or outright brilliant?

This week is the second round of Quantitative Easing in the American market. Bernanke throws another 600 billion into the market to boost the US into economic growth. Most Dutch economists have mixed negative feelings about this and point out that the US Fed are choosing the lower interest policy weapon since the Asia crisis, to boost the economy. But we should note that the US Federal Reserve has a dual mission. They must:
- guard the monetary base / interest rate and stability of the coin AND
- create employment,
as compared to the European Central Bank that must only:
- guard the stability of the coin / monetary base / interest rate.

Why this interesting difference?

It is all because of the previous crisis, more than 100 years ago in the US, when the Fed was founded and when there was a huge unemployment. That resulted in the inclusion of the employment goal into the FED mandate. And its this goal that is now leading the US Federal Reserve Board to fill up the tank with more gasoline, when it's already full. And we all now what happens in such a case: spill-overs.

The size of the American economy is one, that results in spillover effects that will travel the whole world. Other currencies are experiencing the pressure and one only hopes that the American motor will indeed kickstart as a result of the easing. The latest unemployment data of the US appear to be hopeful, but then again: no one is solving the Fanny and Freddy problem. And we are only starting to discover what the effects will be of the robo-signing during foreclosures in the USA.

So, while in the US we see some extra demand for Treasuries now that Uncle Ben is out shopping, pension funds all over the world are choosing a hands-off approach of periferal treasuries. And that leaves us in amidst historical times that only afterwards allows us a final verdict on Bernanke: was he burning his fingers or being outright brilliant?