For your Outside the Box today I treat you to another big, juicy slab of Grant Williams' Things That Make You Go Hmmm… I don't want to be all Grant all the time, but this is just so good I couldn't resist. This week, Grant is digging deep into the history and mystery of the European Union, taking us all the way back to the first inter-country treaty in April 1951 and then following the rather tortuous bureaucratic proceedings that led, by hook and by crook, to today's increasingly problematic eurozone.
Grant then zeroes in on the ever-stalwart Dutch, who, it now appears, are in something of a pickle. He notes that the Dutch "were signatories to the Treaties of Paris and Rome and to every major European Treaty since and are staunch supporters of a unified Europe as well as having a reputation for being amongst the more fiscally disciplined members of the EU." And in September of last year, the Dutch prime minister and his finance minister penned a rather incendiary little diatribe on eurozone behavior that built, with eminently sensible Dutch logic, to the conclusion that "Countries that do not want to submit to this [new, rigorous fiscal] regime can choose to leave the eurozone. Whoever wants to be part of the eurozone must adhere to the agreements and cannot systematically ignore the rules. In the future, the ultimate sanction can be to force countries to leave the euro."
How unfortunate, then, that a mere six months later – and just days after Spain's unilateral decision to favor its own budget projections over those dictated by Brussels, who did we find but the Dutch confessing that they too would violate, by a mile, the fiscal deficit limit imposed by the EU's new treaty. And to make matters worse, Geert Wilders, head of the far-right-wing Freedom Party and a key player in the right-of-center coalition that now governs Holland, has been making noises about a Dutch referendum on continued eurozone membership.
Grant then jumps right across the Channel to catch us up on the antics of the English government, whose much-ballyhooed austerity program appears to be anything but, depending as it does on some rather figmentary revenue assumptions and other fiscal legerdemain. I haven't included that portion of this issue of Hmmm…, because I want to keep the focus this week on eurozone woes (England is not in the euro and didn't sign the new EU treaty, arousing much Continental ire), and to mention that I'm in Paris, attending a very powerful conference on central-bank monetary policy and strategies for dealing with sovereign debt. Organized by the Global Interdependence Center (GIC), the conference could hardly be more timely. I'm here with good friend (and long-time GIC supporter) David Kotok, who mentions today in his own commentary that:
"Our private meetings here involve bankers, central bankers, investors, and money managers – the gamut of those interested in financial markets and economics. We find that one theme persists. All of them are watching the credit spreads involving Portugal and Spain. They realize the market is sending a message of concern. The market is saying that the episode with Greece is not over, and the contagion is spreading in spite of the massive liquidity injections of the European Central Bank. They observe and discuss the use of collective action clauses and how they have to adjust their portfolios now that a government has inserted itself in a retroactive forced alteration of a debt structure. In public, they are polite, but they dissect the risks strenuously. In private, the debates become fierce." (You can read David's whole piece on the Cumberland Advisors website.)
He's right: the tension here, both behind closed doors where the "players" assemble and in public, between the European leadership and their increasingly disgruntled constituencies, is palpable.
And yet, after a tough winter, Paris is bursting with the hopeful energy of spring, and I'm very glad to be here.
Your learning a lot and loving it analyst,