Category Archives: Europe

This was what Brexit was preparing and enabling the British to do, by Duncan Sutherland

Last night I dreamed a dreadful dream. The world as we knew it ceased to be when a global pestilence descended upon it while its climate changed disastrously and uncontrollably. Standing among the ruins of the ancient Roman forum, the leader of the British revealed that he had had a vision. He had perceived that climate change was like unto the decline and fall of the Roman empire, the collapse of a civilized world.

Himself instrumental in undermining the present-day European empire by releasing the British from its grasp, he now contemplated the chaos and collapse to come when wave upon wave of desperate dislocated refugees from Africa and the Middle East would sweep into and over mainland Europe in devastating numbers which could not but seal the fate of the Continent in the apocalypse of climate disaster which Brexit could conceivably enable the island of Great Britain to survive once it had divested itself of the northern part of Ireland and then become self-sufficient by adapting to a warmer and wetter climate and establishing a rigorously defensive barrier against illegal immigration such as human-rights legislation could now be prevented from prohibiting.
Continue reading This was what Brexit was preparing and enabling the British to do, by Duncan Sutherland

Let us explain to Germany what we expect of it TODAY

Published here in French.

For ten years now, we have been hearing the same refrain from other European leaders to justify their procrastination towards the German authorities: “After the elections, things will be clearer”! However, from German election to German election, things are not clearer once the vote has been completed, but more turbulent and, from this point of view, we’ve hit the jackpot today. Let us draw the right conclusions: let us explain to Germany what we expect of it TODAY. That would be impossible because there is no government? nor a coalition? nor maybe even a chancellor? Let us take advantage of this: let us explain to each of the German parties what we expect from its nation, and from itself in particular, TODAY.

Catalan leaders in court facing crimes of more than 30 years in prison, by Duncan Sutherland

Guest post. Open to comments here.

Disloyalty or Dissent?

Political dissent is still evidently constitutionally defined as disloyalty in some instances in Spain. Is this a sound basis for the rule of law in a democracy? Discuss with reference to the Spanish constitution of 1978 and the founding principles of the European Union.

Continue reading Catalan leaders in court facing crimes of more than 30 years in prison, by Duncan Sutherland

Scotland – “A Terrible Beauty Is Born”, by Duncan Sutherland

Guest post.

Since Sunday morning, when the First Minister of Scotland, Nicola Sturgeon, answered a question on a BBC Scotland television programme known as Politics Scotland concerning a House of Lords advice note which had been circulated on the subject of legislative consent in relation to legislation giving effect to Brexit which would have to be submitted to the Scottish Parliament, her answer has been picked up and spread around Europe by distinguished media organizations from ARD in Germany to La Stampa in Italy (not forgetting VilaWeb in Catalonia).

Continue reading Scotland – “A Terrible Beauty Is Born”, by Duncan Sutherland, Paul Jorion : ‘Jean-Claude Juncker’s moral authority has been damaged’, 14th November 2014, Paul Jorion: ‘Jean-Claude Juncker’s moral authority has been damaged’

Does the LuxLeaks scandal represent a risk for the Commission?

Paul Jorion: Jean-Claude Juncker’s moral authority has been damaged. Of course, he hopes his investment plan will bring confidence, and it is a good idea. Especially if it can create employment and give purchasing power to European citizens. But his credibility has been tainted by the revelations about Luxembourg’s fiscal practices.

The current head of the Commission is the man who led the implementation of austerity policies within the Eurogroup, at the same time as organising tax evasion for big companies in Luxembourg. Member states lost billions because of him, and now he wants to impose austerity policies on us. This is an untenable position.

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On Europe, an answer to Mr François Hollande, president of the French Republic, by Pierre-Yves Dambrine

An English translation of Sur l’Europe, en réponse à Monsieur François Hollande, président de la République, par Pierre-Yves Dambrine by Johan Leestemaker

Invited commentary, in response of a tribune de François Hollande published today May 8 in the daily newspaper Le Monde, Paris, France.

Mr. President,

I have carefully read your speech on Europe, published today in the newspaper Le Monde, in the perspective of the very near European elections. I hold no doubt that you are a European by conviction. As many of us still are, because, as you remind us, the Union was a great and beautiful idea, and remains so. Undeniably she has been a factor of peace and has contributed to the economic rise that followed upon the Second World War. However you forget that for a great deal this peace has been also the result of the balance of terror, as Europe owes a part of its security to the American nuclear shield. Certainly, the peace could be maintained based on specific positive grounds, but also somehow by imperfection.

Continue reading On Europe, an answer to Mr François Hollande, president of the French Republic, by Pierre-Yves Dambrine

“The future of the Eurozone from an interest rate standpoint”, European Parliament, November 5, 2013

Here my contribution to European Parliament, Committee on Economic and Monetary Affairs, November 5, 2013, 3:30 to 6:30 p.m.

The future of the Eurozone can be approached as a logical problem. If not solved, it can at least be significantly clarified when the issue is examined from the single standpoint of the sovereign debt’s coupon for the nations belonging to the zone.

Within the economic zone where a currency applies, a single coupon level only should be in existence for each obligatory maturity. The founding fathers of the Eurozone assumed no doubt that such would be the case also for the zone – or at least would tend to become so on the long run. They did not envisage that measurable default risk would develop for individual member nations of the zone, neither of course that reverting to the old currency would ever be considered an option. The fact that for a single maturity coupons vary according to country within the Eurozone is as such an alarming symptom of its current troubles.

Continue reading “The future of the Eurozone from an interest rate standpoint”, European Parliament, November 5, 2013

A mail exchange about JP Morgan’s “The Euro area adjustment: about halfway there”, Europe Economic Research, 28 May 2013

From : Paul Jorion
Object : The Euro area adjustment: about halfway there
Date : 21 June 2013 21:33:20 UTC+02:00
To : Malcolm Barr, David Mackie

Good day MM. Barr and Mackie,

I’m writing to you as I receive several mails drawing my attention to the following paragraph of your recent May report:

“The political systems in the periphery were established in the aftermath of dictatorship, and were defined by that experience. Constitutions tend to show a strong socialist influence, reflecting the political strength that left wing parties gained after the defeat of fascism. Political systems around the periphery typically display several of the following features: weak executives; weak central states relative to regions; constitutional protection of labor rights; consensus building systems which foster political clientalism; and the right to protest if unwelcome changes are made to the political status quo. The shortcomings of this political legacy have been revealed by the crisis.”

The authors of the mails I receive are under the impression that this paragraph means that you regard “constitutional protection of labor rights” and “the right to protest if unwelcome changes are made to the political status quo” as detrimental to business. There is however a wide consensus in the community that such principles are basic to democracy.

Would you be so kind as to dispel any doubts about this, so that I can reply to the mails I received?

Should I not receive any reply from you, I would conclude that you, Gentlemen, do indeed regard some basic democratic principles as detrimental to business, and mention that fact on my blog for the education of the public.

Yours sincerely,

Paul Jorion

From : David Mackie
Object : Rép : The Euro area adjustment: about halfway there
Date : 23 June 2013 14:39:56 UTC+02:00
To : Paul Jorion


Thank you for your email.

The paragraph that you refer to is not intended to suggest that there is a clash between democracy and business and, in any case, we do not believe that to be the case. Rather, the paragraph is intended to be about the functioning of EMU.

There are many ways that EMU can be constructed. One of the key trade offs is between regional burden sharing and national level flexibility.

In principle, the region can choose any point on this trade off. For now, the region is moving towards a point on this trade off which involves a very modest amount of regional burden sharing and a lot of national level flexibility.

Against this background, some countries are struggling to make the adjustments required by this particular vision of EMU.

I hope this clarifies the point we were trying to make.

Best wishes

David Mackie


N. B. : Published with Mr. Mackie’s full approval.

LE SOIR, ‘The only solution is to pool all the debts’, September 4, 2012

Translated from the French by Tim Gupwell.

4 September 2012

An interview with Dominique Berns which appeared today in the economy pages of the daily newspaper, LE SOIR.

“To save the Euro, we must mutually pool the debts”

Q : The president of the ECB, Mario Draghi, has pledged to do “everything within his power to save the Euro”. Numerous observers expect the ECB to start buying up sovereign securities once again, only this time in a far more pro-active manner, in order to reduce the interest rates for the countries in difficulty, in particular for Spain and Italy. And this is in spite of opposition from the Bundesbank, the German Central Bank. Do you also think that Draghi is the only person now who can save the Euro?

A : Perhaps a little paradoxically, I feel very close to Jens Weidmann, the President of the Bundesbank on this point. There aren’t many things one can be certain about in Economics, but the principles underlying the monetary system are fortunately one of the things we do know. A monetary mass needs to be managed prudently as one would manage a household’s finances. It has to reflect the economic situation of the monetary zone where it is being put into circulation. One can – and one has to – create additional money when more wealth has been created, but one cannot simply create money because there isn’t enough of it. That is a recipe for disaster! Apparently this is not something which is well understood. Jens Weidmann understands it, as did his predecessor Axel Weber and the former Chief Economist of the ECB, Jürgen Stark, both of whom resigned last year because they disagreed with the European institution’s sovereign debt repurchase programme.

Q: But all the same, wouldn’t you say that the interest rates asked by the markets for Spain and Italy are excessive – and, above all, unsustainable if they stay at current levels?

A : Indeed. But we are trying to lower the level of Spanish and Italian interest rates by buying their debt, as if the problem was an issue of supply and demand! Their rates are elevated to these levels because they include a double risk premium: one premium to cover the risk of non-repayment, but also a conversion premium since there exists a real risk of a Eurozone collapse and a return to national currencies. It is these risk premiums that need to be reduced, by implementing a real solidarity with these countries, and guaranteeing that they will not be abandoned. If this was done the risk would be reduced and as a result the rates would automatically fall.

Q : But isn’t that just it, isn’t the real problem that absence of any real solidarity between the various Eurozone members ?

A : To pool the debt or not to pool the debt? That is the question! However, for the moment, in words everyone swears it is a ‘yes’, but the facts only seem to indicate a ‘perhaps’. Jens Weidmann declared, quite correctly, that the ECB cannot implement a policy of integration which the political leaders do not have the courage to carry out. The politicians content themselves with saying to the ECB, “get printing then!” (money, that is). Yes, it is true to say that the Federal Reserve, the American central bank, has not held back. But it can, because it still benefits from the fact that the Dollar is the reserve currency. The Eurozone cannot allow itself to do the same. So, there remain two choices: either one puts an end to the Euro, acknowledging that one hadn’t understood that a monetary zone could not function without fiscal unification; or on the other hand, one creates a federation.

Q : But who wants European federalism today ?

R : But that is really the only solution – mutually pooling the public debts of all 17 members of the monetary union. One Sunday evening, before the financial markets open in Asia, the decision needs to be taken that there will no longer be any national sovereign debts, only Eurozone debts, a Eurodebt. As a consequence it will be restructured in accordance with the cash that remains in the Eurozone as a whole.  The next day, the market will decide what the Euro is worth in relation to the other currencies. This is the only solution if one wants to avoid a gradual break-up of the Eurozone, which will see countries jumping overboard one by one. First Greece, then Portugal, then Spain…..and still without resolving any of the problems of those still on deck!


Translated from the French by Tim Gupwell

In my articles here, I generally address myself to anyone who wants to read me, but just this once, I would like to direct my address to my fellow financial engineers, and moreover in a tone – also just this once – of provocation which is blatant but, let us hope, efficient as well.

Here we go: a monetary zone has to be able to default in its entirety and restructure its debt (namely, to be able to say, “I can only pay back X centimes for every Euro I have borrowed”) and it also has to be able to re-evaluate its currency, and, in particular, to be able to devalue it.

The Eurozone has deprived itself of these two medicines. Hardly surprising then that today it is terminally ill.

The Solution: next Sunday evening (before Tokyo opens), the entire debt for all 17 countries in the Eurozone will be re-baptized Eurodebt (French OAT bonds, German Bunds, etc.) and the following minute, the Eurozone as a whole will default.

On Monday morning, the Eurodebt will be restructured (in one go) and the exchange rate between the Euro and other currencies will be allowed to adjust naturally.

The Eurozone will have carried out its metamorphosis. It will now be able to function like any other ordinary monetary zone. It will have been saved.

PS. Would all those commentators who are likely to say that we would be better off not saving the Euro please take your comments elsewhere; I am not talking here of either a ‘for’ or an ‘against’.

PROGRESS, TOO GOOD TO BE TRUE, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

When there seems no way out, and the future seems unclear, it is then that promising visions of the future seem to abound.

The Bundesbank, accompanied by all those who take their cues from it, never miss an opportunity to remind us of the formula they stick to so stubbornly: their promise of growth at a later date once labour costs have been reduced and a renewed competiveness in the international markets.

Jens Weidmann, its enlightened president, has even suggested immediately extending the European aid provided to Spanish banks to the whole of the country’s economy, pursuing yet another triumphant march forward, complete with new additional austerity measures. Without even waiting, Mariano Rajoy’s Government has just announced that the latest set of measures will not bring in 65 billion Euros, as had been suggested just a few days before, but only 56.4 billion (perhaps it was a miscalculation?). Naturally, new measures will have to be found to compensate.

Continue reading PROGRESS, TOO GOOD TO BE TRUE, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

The European Finance Ministers managed during the course of the night to finalize a minimal agreement, which needs, as usual, to be examined in detail due to its grey areas. They put together a set of nominations to the ECB and the ESM based upon the provisional re-appointment of Jean-Claude Juncker at its head, in the absence of any other solution. Then they reached a “tentative agreement” (another way of saying a broad outline) with regard to the particular case of Spain which needs to be wrapped up for adoption on the 20th July.

An additional year will be given to Spain to reduce its deficit and get back on track, which confirms that things are in the process of getting out of hand, and which depends on the new austerity measures that Mariano Rajoy is going to announce this week. These are said to include an increase in VAT, reduced social security payments, reductions in unemployment benefits and a revision of the methods used to calculate retirement benefits. A preview of the program has already been presented by the Spanish Finance Minister, Luis de Guindos.


GUILTY PARTIES WANTED !, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

In accordance with the predictable script, the bond market is under pressure again. The cost of servicing Spanish and Italian debt has continued to increase as their financing plans move forward in little measured steps. The effect of all this is to place an additional burden on the budgets, undermining those measures which are intended to reduce the deficits.

The statistical institutes INSEE (France), IFO (Germany) and ISTAT (Italy) all agree: Europe is sinking into a recession which they describe as ‘technical” in an attempt to make it sound innocuous, but which, regardless of what they call it, amounts to the same thing. This is why the ECB has, unsurprisingly, just decided to cut its main interest rate.

It explained that it was trying once more to encourage banks to develop credit in a bid to restart the economy. With the markets having anticipated the move, there is no guarantee of success. Success is assured, on the other hand, for the Eurosystem in its role of bad bank, the central bank having once more lowering the bar for the collateral guarantees it will accept from banks in return for this operation. Once again, the hidden purpose is to ease the pressure on the banks.

Continue reading GUILTY PARTIES WANTED !, by François Leclerc


The Spanish risk premium

There were two bond issues today, one in Spain, the other in Denmark, which allow us to carry out an interesting little calculation of the risk premium required of Spain when it borrows on the capital markets.

A short while ago the Spanish Treasury department issued more than 3 billion Euros of debt for 12- 18 month securities.

Because we must always look on the bright side of life, it was pointed out that for an offer of only 3 billion there was a demand up to 8 billion – which is always nice to know, but not of tremendous interest since what is really important today (in the context of yields exceeding 7% for 10 year Spanish debt) is the coupon demanded by potential lenders in order for them to do without their capital for a year, or a year and a half. And in this respect, the situation is a lot less rosy: Spain has had to agree to 5.074% for a year and 5.107% for 18 months. It’s very steep, and not only if you compare it, for example, with what the capital markets are asking of Germany at the moment, but also with regard to what this very same Spain was being asked for only a little more than a month ago. On the 14th May, to be exact, Spain was borrowing over one year at 2.985% and for 18 months at 3.302%.

An increase in the risk premium, therefore, over one month and 5 days, for a one year Spanish bond (by 2.089%) and for an 18 month bond (by 1.805%). That’s steep enough in itself. It bodes very badly for what is likely to happen on Thursday, when Spain will attempt to issue two, three and five year debts for a total of 2 to 3 billion Euros. The potential demand will be (I can already guarantee it) around 5 billion Euros, which will be presented as a positive piece of news (that too I can guarantee), but what will be really interesting to know, is at what rate, including with what risk premium, the capital markets, in their magnanimity, will be prepared to lend to Spain?

Now to dishearten the Spaniards a little more: the Danish have also issued debt today, two year debt, for a lower amount, of course, of 1.55 Billion Crowns, something in the order of 208 million Euros. What coupon did the lenders get as compensation for their two years of deprivation? -0.08%. In case you missed it, I’ll repeat that in words: minus zero point zero eight per cent.

In order to lend over two years without risk (that’s what lending to Denmark amounts to at the moment), the capital markets are prepared, at the current time, to pay out of their own pockets. That speaks volumes, my friends, of the confidence there is in the Eurozone!

Ok, just to finish off, here is the little calculation as promised. If the rate without risk today for two year debt is at 0.08%, the risk premium over one year is (as a minimum, because it’s over a shorter period of time) 5.074% + 0.08% = 5.154%, and for 18 months (at least) 5.07% + 0.08% = 5.187%.

Have a nice day all the same!



And now?

14 juin 2012 par Paul Jorion

And now? What are we going to do? Now that Spain has lost access to capital markets for its debt?

True, the downgrading yesterday evening of Spain’s rating by three notches by Moody’s, from an A3 to Baa3 has not helped matters. But after all, it hasn’t taught us anything that we didn’t already know last weekend: with a 10 year sovereign debt rate stuck around the level of 6.75% (*), the game was up anyway when it comes to financing its debt on the capital markets.

The cause of all this? The additional 100 billion euros obtained by Spain from the European funds, and for which the nation itself is directly liable, European regulations forbidding direct bail-outs from its institutions.

Have you noticed that the European regulations are packed with suicidal clauses, the implications of which we are still discovering today, in emergency situations? Some people, convinced of the unlimited power of the human will, will explain to you that this is deliberate: foreseen long ago for the setting in motion, one day, of the Great Secret Plan. A more down-to-earth explanation is that it is the result of human inventions which natural selection has not yet had the time to sort out.

But didn’t the Americans succeed, managing to found a great nation with lots of little bits?! True, but that is indeed the point: in that particular instance, the method of trial and error was used on a grand scale – the United States of today has had to endure a vicious civil war to clear things up somewhat. And some of the scars are still fresh.

Already, keeping the Greeks in the family is very hard. Add to that Portugal, plus Ireland, plus Cyprus (today, at the end of the morning). Nevertheless, Spain – and this was said from the start, right after the initial alert at the beginning of 2010 – is too big a morsel to swallow for the Euro zone to rest intact: it is just not possible. Not to mention Italy, also very pale, on a chair in the corridor of the clinic.

On the 5th April 2010– already two years ago! – I had explained it in an article for the Monde-Economie entitled “The red line”: “There will soon be national unity governments, when it becomes evident to everyone that no single party is able to get to grips with the irresolvable problems being posed; subsequently this will be followed by a Committee of Public Safety when it becomes clear that even working together they understand nothing; and – if God takes pity on us – this will be followed finally by a new National Resistance Council, at the moment when it will be necessary, beyond the differences considered irreconcilable today, to launch an ultimate attempt to save what can still be saved.”

M. Hollande has not yet reached this stage, convinced as he is, that if what France needs is growth, the Greek temperament is far better suited to aggressive austerity measures. What he wishes for the Greeks is for Pasok and New Democracy to come out victorious in the Greek elections. And he hasn’t hesitated to tell them. Without doubt, this would be a miniature reproduction of the ill-matched Franco-German couple which is currently offered to us. The winning formula seems, to him, to be that of the union of a right-wing Socialist party with a Liberal party, both of them convinced that mothballing the welfare state is a much more urgent priority than reining in the world of finance

It is to be noted that the Americans are in much the same state of mind. Yesterday, Jamie Dimon, the boss of J .P. Morgan Chase was being grilled by the Banking Committee of the American Senate. He was asked how his bank had managed, by inadvertence, to lose between 3 and 10 billion dollars. The Republican Party Senators used up all their allocated speaking time to maintain – wanting Mr. Dimon to confirm it enthusiastically – that at the moment the greatest worry is that of an over-regulation of the financial sector. This is how it is at certain periods, you can take my word for it: programmed suicide is to be found everywhere. And I am sparing you the most comical examples.

Finally, let’s wager that people in Brussels are working hard at the moment to find solutions, that further cunning plans are being concocted in order to be put into practice in 2014 or 2018. Why are these miracle solutions always being delayed, it would not be an exaggeration to say, indefinitely? All in good time. Except that today, on the 14th June 2012, this is what is missing the most – time that is.

(*) 6.974% at 10:51


Spain in stormy waters

12 juin 2012 par Paul Jorion

The 10 year rate for Spanish debt has just reached a historic high. On the 25th November of last year, the rate had beaten a record when it reached 6.72%. Yesterday early in the morning, when the European markets were in ecstasy about the news of an 100 billion euro aid package for the Spanish banks via the Spanish state, the rate had dropped back down to 6.02%. It has just reached 6.809% (at 16:27 Paris time).

Of course the danger of this type of progression is that an increase in the rate generates a positive feedback loop: the rise reflects the impression that the credit risk is deteriorating (the risk of the debt not being reimbursed and of the non-payment of the interest promised), a deterioration which will lead to capital markets demanding the inclusion of a higher “risk premium” in the rate. But a higher rate will make it more difficult for the state to meet its debt commitments (reimbursing the sums borrowed and paying out the promised interest), which will increase the credit risk for its lenders….. which will in turn lead them to require the inclusion of a higher “risk premium” in the rate, etc..

There is a threshold beyond which this mutually reinforcing effect becomes irreversible. Unfortunately for Spain, it has just entered into these waters

A WAIT DESTINED TO LAST, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

The European Commission in Brussels is getting ready to unveil a project aiming to prevent and cure the banking crises, destined to enter into service in 2014, certain procedures being foreseen for 2018. There is a certain sense of timing, but certainly not a sense of urgency.

The Spanish are now appealing for help, admitting that they have been cut off from the markets, ready to sell off whole swathes of their banking system to save it, calling for direct aid so as not to fall into the clutches of the Troïka. At the end of the G7 finance ministers’ conference call only one important piece of news could be gleaned: the Europeans are committed to a ‘rapid response’ to the crisis, revealed the Japanese finance minister, Jun Azumi. All the other participants endeavoured to play down its importance, which indeed had led to nothing concrete in the short term.

The rest is in keeping. There will be plenty of time to analyze the Commission’s propositions in detail – as long as there are some. What has already come to light, however, is without ambiguity: the project carefully avoids tackling any of the difficult questions. It leaves great latitude to national regulators, in spite of them being suspected of all kinds of leniencies, and it clearly avoids tackling all the financial aspects. Its vagueness allows us a glimpse of the possibility that under cover of relieving states from the costs of banking bail-outs, it leaves the door ajar which will allow them to be asked to contribute in future.

Continue reading A WAIT DESTINED TO LAST, by François Leclerc