Franco-German secret negotiations for new euro contract

Merkel is always blabbering about budget discipline, but I’m beginning to think its all a smokesrceen to conceal her real intention–to create a euro-government without getting public approval via the democratic process (referenda) Already, today Reuters had a story about restructuring without haircuts for bondholders. (It sounds like germany is on board) And now it’s this baloney about an emergency stability pact that circumvents the EU commission, the German courts, the will of the people, or the Lisbon Treaty!

How do ya like them apples?!?

 Merkel is just winging it on some grand scam that will let the ECB do whatever the hell it wants to, and there will also likely be some kind of eurobond that will be dolled up as something else. (Let the public relations guys handle it) 

Merkel is just like the rest of the globalist scum who try to sound like nationalists when they’er really doing “god’s work”, if you catch my meaning.

A zero haircut option for bond holders is simply extend and pretend, no matter how you present it. The overwhelming problem is excessive debt and guaranteeing bondholder debt with an austerity package is a route to disaster. The nations impacted will have soaring debt burdens and will eventually collapse. The deeper and more savage the haircuts the faster they can recover. There is nothing here that resolves the excess debt problems for any of the nations. 

I see euro bonds as the best solution to the “more Europe” concept of monetary union, it should allow a central funding facility (presumably the EFSF/ESM) to take on a quasi Treasury role. It’s quite possible Germany will pay higher rates than normal, and by normal I mean prior to the crisis. Anyway, the concept of a union is “we all take a bite from the sandwich” for the greater good. That means Germans bite it on rates and PIIGS on austerity.

Now, to find some buyers. Who might be interested in a package deal including toxic peripheral debt and stronger German and French debt, increasingly under pressure, in a securitized package? I am sure the IMF, who always get repaid – remember, would jump in. Would China or other BRIC nations? How about the US, even if indirectly by providing funding the the IMF? Maybe, but short of ECB printing, this is their best hope of funding the Eurozone without addressing the problems of the fixed currency. And one can only hope the failed EFSF auction is not a prelude of things to come.

Anyway, if the word is out and Greece get’s wind of it, look for 75% haircuts and easing back form austerity, I guess. Seems the technocratic government is using it’s technocratic knowledge to best effect. I dunno, jawboning will probably rally the euro on rumor soon enough and maybe sell off on the news later.

The now rumored $600 billion loan from the IMF to Italy undermine this treaty proposal. By bringing in the IMF this brings the US, Japan, China and rest of the world’s checkbook to the table thereby giving Germany and France and the ECB a hugely significantly lower contribution with less liability.

None of these proposals affect the long term problem of economic growth, deficit trade accounts, wage disequilibrium nor do they reduce their debt/GDP ratios in these countries.

If the IMF comes to the rescue Italy and the others will not need to grant the EU control over their budgets. Austerity will be more determined by the IMF which will be more tolerant than the Germans.
If the IMF loans Italy 600 Billion, Spain will follow immediately. The Irish will come back to renegotiate their deal. Hungary and Portugal will be at the feeding trough as well. With Belgium close behind. The IMF will need in excess of 1 trillion euros. Of which the USA taxpayer will be on the hook for a minimu 17% or about $220 billion (1.32 exchange rate). 

Grover Norquist and the republican primary candidates will be all over this. Not to mention the Occupy Wall Street crowd. I do not beleive that the increased US contribution to the IMF can be made through the Federal Reserve Bank. I beleive this may have to come through the US congress as an appropriation. Good luck with this based on the Super committee and the pending unemployment extension and payroll tax cut extension 

This IMF plan not only bails out Italy, Spain, et al but now shifts to essentially bailing out France and Germany from their EU/ESFS/ECB obligations.

The Brits will also not follow suit. They are not part of the Euro but are members of the EU and will not want to give their budget to be controlled by Brussels.

Most importantly these future budgets would have to approved by the EU before being sent to their respective sovereign governments for vote. This would effectively neuter most politicians in all countries. And at the end of the day some aspiring politician will sue and litigate that the treaty is illegal as a lever to a stronger political base. We have already seen how the German Supreme Court rules on these matters.

The only real solution for the debt/banking crisis is for certain members of the Eurozone to leave the Euro and default. They can then write their debt down by 50-70% and create a new currency that will reflect their instability and change the way institutions invest and perceive a risk free return.

Or in the alternative raise taxes in these countries and sell national assets to reduce their debt. Loaning them money only kicks the can further down the road.