Collapse of EU Monetary Union Unavoidable

The Euro is simply a house of cards waiting to collapse, IMHO along with that of Professor Otmar Issing, the ECB's first chief economist as stated in the following article by Ambrose Evans-Pritchard.

The European Central Bank is becoming dangerously over-extended and the whole euro project is unworkable in its current form, the founding architect of the monetary union has warned.

"One day, the house of cards will collapse,” said Professor Otmar Issing, the ECB's first chief economist and a towering figure in the construction of the single currency.

Prof Issing said the euro has been betrayed by politics, lamenting that the experiment went wrong from the beginning and has since degenerated into a fiscal free-for-all that once again masks the festering pathologies. And he is factually correct.

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly," he told the journal Central Banking in a remarkable deconstruction of the project.

The comments are a reminder that the Eurozone has not overcome its structural incoherence. A beguiling combination of cheap oil, a cheap euro, quantitative easing and less fiscal austerity have disguised this, but the short-term effects are already fading.

The regime is almost certain to be tested again in the next global downturn, this time starting with higher levels of debt and unemployment, and greater political fatigue.

Prof Issing lambasted the European Commission as a creature of political forces that have given up trying to enforce the rules in any meaningful way. "The moral hazard is overwhelming," he said.  

The European Central Bank is on a "slippery slope" and has in his view fatally compromised the system by bailing out bankrupt states in palpable violation of the treaties.

"The Stability and Growth Pact has more or less failed. Market discipline is done away with by ECB interventions. So there is no fiscal control mechanism from markets or politics. This has all the elements to bring disaster for monetary union.

"The no-bailout clause is violated every day," he said, dismissing the European Court's approval for bailout measures as simple-minded and ideological.

The ECB has "crossed the Rubicon" and is now in an untenable position, trying to reconcile conflicting roles as banking regulator, Troika enforcer in rescue missions and agent of monetary policy. Its own financial integrity is increasingly in jeopardy.

The central bank already holds over €1 trillion of bonds bought at "artificially low" or negative yields, implying huge paper losses once interest rates rise again. "An exit from the QE policy is more and more difficult, as the consequences potentially could be disastrous," he said.

"The decline in the quality of eligible collateral is a grave problem. The ECB is now buying corporate bonds that are close to junk, and the haircuts can barely deal with a one-notch credit downgrade. The reputational risk of such actions by a central bank would have been unthinkable in the past," he said.

Cloaking it all is obfuscation, political mendacity and endemic denial.  Leaders of the heavily indebted states have misled their voters with soothing bromides, falsely suggesting that some form of fiscal union or debt mutualisation is just around the corner.

Yet there is no chance of political union or the creation of an EU treasury in the foreseeable future, which would, in any case, require a sweeping change to the German constitution - an impossible proposition in the current political climate. 

The European project must, therefore, function as a union of sovereign states, or fail.

Prof Issing slammed the first Greek rescue in 2010 as little more than a bailout for German and French banks, insisting that it would have been far better to eject Greece from the euro as a salutary lesson for all. The Greeks should have been offered generous support, but only after it had restored exchange rate viability by returning to the drachma.

His critique will exasperate those at the ECB and the International Monetary Fund who inherited the crisis and had to deal with a fast-moving and terrifying situation.

The fear was a chain-reaction reaching Spain and Italy, detonating an uncontrollable financial collapse. This nearly happened on two occasions and remained a risk until Berlin switched tack and agreed to let the ECB shore up the Spanish and Italian debt markets in 2012.

Many would say the crisis mushroomed precisely because the ECB was unable to act as a lender-of-last-resort. Prof Issing and others from the Bundesbank were chiefly responsible for this design flaw.

Jacques Delors, the euro's "political" founding father, issued his own candid post-mortem last month on the failings of EMU but disagrees starkly with Prof Issing about the nature of the problem.

His foundation calls for a supranational economic government with debt pooling and an EU treasury, as well as expansionary policies to break out of the "vicious circle" and prevent a second Lost Decade.

"It is essential and urgent: at some point in the future, Europe will be hit by a new economic crisis. We do not know whether this will be in six weeks, six months or six years. But in its current set-up the euro is unlikely to survive that coming crisis," said the Delors report.

Prof Issing is not a German nationalist. He is open to the idea of a genuine United States of Europe built on proper foundations, but has warned repeatedly against trying to force the pace of integration, or to achieve federalism "by the back door".

He decries the latest EU plan for a "fiscal entity" in the Five Presidents' Report, fearing that such move would lead to a rogue plenipotentiary with unbridled powers over sensitive issues of national life, beyond democratic accountability.

Such a system would erode the budgetary sovereignty of the member states and violate the principle of no taxation without representation, forgetting the lessons of the English Civil War and the American Revolution.

Prof Issing said the venture began to go off the rails immediately, though the structural damage was disguised by the financial boom. "There was no speed-up of convergence after 1999 – rather, the opposite. From day one, quite a number of countries started working in the wrong direction."

A string of states let rip with wage rises, brushing aside warnings that this would prove fatal in an irrevocable currency union. "During the first eight years, unit labour costs in Portugal rose by 30pc versus Germany. In the past, the escudo would have devalued by 30pc, and things more or less would be back to where they were."

"Quite a few countries – including Ireland, Italy and Greece – behaved as though they could still devalue their currencies," he said.

The elemental problem is that once a high-debt state has lost 30pc in competitiveness within a fixed exchange system, it is almost impossible to claw back the ground in the sort of deflationary world we face today.

It has become a trap. The whole Eurozone structure has acquired a contractionary bias. The deflation is now self-fulling. 

Prof Issing's purist German ideology has no compelling answer to this.

Source @http://www.telegraph.co.uk/business/2016/10/16/euro-house-of-cards-to-collapse-warns-ecb-prophet/

Should Christians Vote for Trump?

Trump’s behaviour is odious, but Clinton has a deplorable basketful of deal-breakers, by ERIC METAXAS.   

This question should hardly require an essay, but let’s face it: We’re living in strange times. America is in trouble.

Over this past year, many of Donald Trump’s comments have made me almost literally hopping mad. The hot-mic comments from 2005 are especially horrifying. Can there be any question we should denounce them with flailing arms and screeching volume? I must not hang out in the right locker rooms, because if anyone I know said such things I might assault him physically (and repent later). So yes, many see these comments as a deal-breaker.

But we have a very knotty and larger problem. What if the other candidate also has deal breakers? Even a whole deplorable basketful? Suddenly things become horribly awkward. Would God want me simply not to vote? Is that a serious option?

What if not pulling the lever for Mr. Trump effectively means electing someone who has actively enabled sexual predation in her husband before—and while—he was president? Won’t God hold me responsible for that? What if she defended a man who raped a 12-year-old and in recalling the case laughed about getting away with it? Will I be excused from letting this person become president? What if she used her position as secretary of state to funnel hundreds of millions into her own foundation, much of it from nations that treat women and gay people worse than dogs? Since these things are true, can I escape responsibility for them by simply not voting?

Many say they won’t vote because choosing the lesser of two evils is still choosing evil. But this is sophistry. Neither candidate is pure evil. They are human beings. We cannot escape the uncomfortable obligation to soberly choose between them. Not voting—or voting for a third candidate who cannot win—is a rationalization designed more than anything to assuage our consciences. Yet people in America and abroad depend on voters to make this very difficult choice.

Children in the Middle East are forced to watch their fathers drowned in cages by ISIS. Kids in inner-city America are condemned to lives of poverty, hopelessness and increasing violence. Shall we sit on our hands and simply trust “the least of these” to God, as though that were our only option? Don’t we have an obligation to them?

Two heroes about whom I’ve written faced similar difficulties. William Wilberforce, who ended the slave trade in the British Empire, often worked with other parliamentarians he knew to be vile and immoral in their personal lives.

Why did he? First, because as a sincere Christian he knew he must extend grace and forgiveness to others since he desperately needed them himself. Second, because he knew the main issue was not his moral purity, nor the moral impurity of his colleagues, but rather the injustices and horrors suffered by the African slaves whose cause he championed. He knew that before God his first obligation was to them, and he must do what he could to help them.

The anti-Nazi martyr Dietrich Bonhoeffer also did things most Christians of his day were disgusted by. He most infamously joined a plot to kill the head of his government. He was horrified by it, but he did it nonetheless because he knew that to stay “morally pure” would allow the murder of millions to continue. Doing nothing or merely “praying” was not an option. He understood that God was merciful and that even if his actions were wrong, God saw his heart and could forgive him. But he knew he must act.

Wilberforce and Bonhoeffer knew it was an audience of One to whom they would ultimately answer. And He asks, “What did you do to the least of these?”

It’s a fact that if Hillary Clinton is elected, the country’s chance to have a Supreme Court that values the Constitution—and the genuine liberty and self-government for which millions have died—is gone. Not for four years, or eight, but forever. Many say Mr. Trump can’t be trusted to deliver on this score, but Mrs. Clinton certainly can be trusted in the opposite direction. For our kids and grandkids, are we not obliged to take our best shot at this? Shall we sit on our hands and refuse to choose?                                                                                                                                                                                                                     

If imperiously flouting the rules by having a private server endangered American lives and secrets and may lead to more deaths if she cynically deleted thousands of emails, and if her foreign-policy judgment led to the rise of Islamic State, won’t refuse to vote to make me responsible for those suffering as a result of these things? How do I squirm out of this horrific conundrum? It’s unavoidable: We who can vote must answer to God for these people, whom He loves. We are indeed our brothers’ and sisters’ keepers.

We would be responsible for passively electing someone who champions the abomination of partial-birth abortion, someone who is celebrated by an organization that sells baby parts. We already live in a country where judges force bakers, florists and photographers to violate their consciences and faith—and Mrs. Clinton has zealously ratified this. If we believe this ends with bakers and photographers, we are horribly mistaken. No matter your faith or lack of faith, this statist view of America will dramatically affect you and your children.

For many of us, this is very painful, pulling the lever for someone many think odious. But please consider this: A vote for Donald Trump is not necessarily a vote for Donald Trump himself. It is a vote for those who will be affected by the results of this election. Not to vote is to vote. God will not hold us guiltless.

Mr. Metaxas, host of the nationally syndicated “Eric Metaxas Show,” is the author of “If You Can Keep It: The Forgotten Promise of American Liberty” (Viking, 2016).