EU Debt Crisis Resolution: Pieces of the Picture

Two Leading News by the end of 2011
2011年, 兩個主要的公債消息: 西班牙公債跟義大利公債拍賣各宣布了些好消息

Spanish Bond Auction Result,  and the Weighted-Average Rate now
Italian Borrowing Cost decline

We can gradually see the ECB and EU operation from these information:
As for ECB: ECB injected the liquidity to banks, implicitly encourage the banks bidding on national debts, to drive down the borrowing cost, for these governments to stir through this turbulence.

As for EU: the government side, these funding does not come without a cost, they have to implement a series of austerity program. "Austerity" means: a boarder cut of government budget, a smaller cheques(public transfer) for their citizens, a higher retirement age, and limited social security package. These may gradually lead to a greater fiscal union within EU structure. New treaty? New power? these are still under discussion.

我們可以從兩個方向簡單來的看目前歐洲的解決方案:
歐洲央行給了歐洲各國的銀行短期(三年)的低利貸款,這些低利貸款直接放貸給各國銀行, 然後各國銀行可以藉由歐洲各國的公債標售市場, 投入更多的金額到各國公債中, 降低各國公債借款利率.

但各國畢竟還是得自己建立起償債能力, 這個部分就得透過歐盟最近的協商來進行. 主要的問題就在於財政同盟是否可以順利推行: 也就是說, 歐盟成立當時的各國財政計畫將會用更嚴謹的方式來執行: 這是場政治角力, 也是整個計畫最困難的部分.

The first part seems working so far, at least from recent auction news: market responded positively on these package; therefore,  these indebted governments can finance themselves with lower cost, buying themselves more time to achieve the fiscal packages they need to push through via those technocrats.

Yet, now it is the key for the second part: will politics play nice and neat to a boarder consensus on fiscal policies and amend the treaties(or signing up new ones) accordingly.

The tough part has yet come, the real battles are in 2012, for all we know "nice and neat" ain't the word for politics.

目前第一部分是可行的, 至少以最近公債標售的狀況來講, 義大利西班牙兩國都可以稍微喘口氣, 但第二部分就不知道是否真的行得通了: 至少在聖誕節前看起來, 歐盟各國還有很多路要走.
歐洲是不是德國說了算? 這篇從前法國外交官筆下的描述就可以知道歐盟的政治協商還有多遠要走.


Let's pull off from Europe and revisit an American view presented by Prof. Cochrane:
There are two points I agree most and believe should be emphasized:

1.) Fiscal Union is not really necessary:
Prof. Cochrane brought out some analogue, comparing states in United States and member states in European Union. We all know across different States in US, the economic development varies. A state government should have some autonomy over their fiscal policies.

But, wait, then how can we control these countries that they do not spend too much, and digging holes for themselves again?

2.) Naitonal debt should be treated as corporate debt:
Here, a key word is "market"
If investors decide to invest into a riskier corporate bond, then they know they bear the risk of default.
They ask for higher rate, and the price of bond would reflect the riskiness of such security.
Why not national debt should be treated the same?

because national debt default would trigger the domino effect, and the linkage, as I mentioned in previous article, is through banking channels.

So, Prof. Cochrane suggest decoupling is necessary, and consider the current intervention will only push the risk even higher. These Xmas picture is artificial; the problem won't be solved until we got a real deal on fiscal union: which will be difficult.

So, in short, if "market" is functional, then the money will flow to the right countries. To gain cheaper financing on their investment project, these countries will impose fiscal discipline, or even austerity, themselves. In a positive spiral, it will place EU and her composite member states into the right direction.

我還是想回到Prof. Cochrane的文章:
1.) 財政同盟是不必要的: 各國必須要對於自己的舉債狀況負責, 但各國也應該維持他們舉債的彈性. 就像美國各州一樣, 歐洲各國之間的經濟狀況差異很大. 進一步的財政統一並不必要.

那麼我們要怎樣防止歐盟各國花了太多錢?

2.) 國家公債應該就像公司債一樣:
當各國的銀行跟保險公司認為他們所買的該國公債是無風險的時候, 他們其實都買了太多他們自家的公債. 如果公債就像公司債一樣, 有倒債風險的話, 那麼這些投資機構會更加謹慎, 財務資源就自然而然會流向較為"正常", 或者是財務機制較為健全的國家. 而為了得到更好的籌資條件, (不用進一步的法規規定), 各國就會自行調整到較為健全的財務結構, 那慢慢的歐盟就會走向財務體系一致的路線

What EU and ECB is doing is quite different from their American counterparty would have done. In the short-term, their policy might work. Yet, we will see more and more battle goes on in the up-coming years.(when saying years, I mean 3-years, when the ECB loan to these banks mature, we might have to see another headache)

如果像現在這個樣子, 歐洲各國的銀行基本上還是靠著歐洲央行輸血過生活, 而經濟活動, 或者是各國的財務狀況, 也還沒有辦法馬上得到立即的復甦, 歐債真正解決的時間可能只是拖得更長久而已.