From Ambrose Evans-Pritchard at The Telegraph – Self-righteous Germany must accept a euro-debt union or leave EMU:
If Germany and its hard-money allies genuinely wish to save the euro – which is open to doubt – they should stop posturing, face up to the grim imperative of a Transferunion, and desist immediately from imposing their ruinous and reactionary policies of debt deflation on southern Europe and Ireland…
It beggars belief that the ECB should continue to allow the contraction of the M3 money supply and credit to private firms. Since EU leaders have already shown their willingness to ram through treaty changes without full ratification under Article 48 of the Lisbon Treaty, they can likewise bring ECB ideologues to heel with a new mandate.
If the Teutonic bloc cannot accept such a political revolution, it should withdraw from monetary union before inflicting any more damage to the social fabric of southern Europe, or at least allow a 30pc appreciation within EMU by creating a Doppelmark.
An internal adjustment could be done overnight, if necessary with temporary capital controls. The residual euro states would undergo a relatively seamless devaluation to levels that reflect the reality of current account deficits and labour productivity, yet their existing contracts in euros would be upheld.
Creditor states – and Britain – would have to stand ready to recapitalise their own banks at great cost to fortify them against the systemic shock of haircuts on the entire debt stock of peripheral EMU. True burden-sharing at last.
“Behind the curve”, was the understated rebuke by IMF chief Dominique Strauss-Kahn.
His own IMF team has indicated the policy that it is being told to enforce as junior partner of the EU rescues. It warned of “adverse fiscal and financial feedback loops” in Ireland, in its latest report.
“A prolonged period of deep recession could weaken loan repayment capacity of households and businesses and increase bank losses beyond current projections, leading the economy into a negative spiral. Wage and price deflation – coupled with contraction in activity – could have a powerful negative effect on debt dynamics,” it said.
“There are significant risks that could affect Ireland’s capacity to repay the Fund,” it said. Indeed, so why is the IMF board giving a green light to this obscurantism?
The EU torture policy of thrusting yet more debt on crippled states already caught in a debt trap – and then forcing them even deeper into downward spiral with a 1930s policy of wage cuts and “internal devaluation” – is an intellectual disgrace.
Let it never be forgotten that Ireland and Spain are struggling because EMU caused a collapse in real interest rates to -1pc or -2pc, setting off an uncontrollable boom. This is what the Gold Standard did to Germany in the late 1920s, when US banks funded a German credit bubble. That ended with the destruction of German democracy.