Monday, December 05, 2011

A-level fail

UPDATE: The WSJ clog - "If these treaty changes do come through, and euro states are subjected to permanent oversight of their finances, that opens the door to monthly arguments over budgets. The festering euro sore will be yanked open every four weeks. Shudder".

The horror show of constant crisis meetings that has persisted through 2011 is never going to go away.

UPDATE: Our preference is for a treaty among the 27 (EU members), so that nobody feels excluded, but we are open to a treaty among the 17 (euro members), open to any state that wants to join us.

And they are talking about "the contours" being agreed by March. But the possibility of an intergovernmental treaty has been left on the table. But there is not a great deal more ... the words "damp squib" come to mind. Clearly, there is no core agreement between the German and French leaders.

The detail is yet to come, we now learn, to be set out in a letter to Van Rompuy for delivery on Wednesday. The text will will then be discussed by member state leaders at their meeting in Brussels.

UPDATE: Sarkozy agrees to a modified EU Treaty. The essence seems to be that there will be automatic sanctions against those who breach the stability pact. The ECJ will not be able to veto budgets but will be able to decide if budget rules have been breached. Sanctions can only be overturned by a qualified majority, unlike the current situation, where sanctions can only be imposed by a qualified majority.

Se we thus have a perpetuation of the mad scheme where countries in deficit are fined for being in deficit ... thereby adding to the deficit. Only this time it is automatic, because, up to press, member states were not mad enough to apply this rule.

UPDATE: ZeroHedge - We can't help but feel that we are watching a performance this week. It feels like the actions, the meetings, and the statements are all very scripted.

It seems reasonably clear which ending they are going for, but many of their actions also fit the "alternative" ending so it remains imperative to be cautious. We will go through the motions of the planned scripts. Many will shake their heads as the markets respond, but sooner or later (probably sooner), even those who fell for the media blitz will realize nothing is resolved.

UPDATE: From the same news agency - "Several EU member states are urging Germany to drop its demands for changes to the EU treaty, arguing that deeper fiscal integration in the euro zone can be achieved without overhauling the EU's fundamental law".

"If you go for treaty change at 27, you cannot avoid the convention," said a senior EU official involved in the discussions, referring to the negotiation process. "You cannot say we're entering a new stage of fiscal union and at the same time that it's only a limited treaty change that doesn't need a convention. The parliament will never take that."

Instead, member states and EU negotiators are trying to convince Berlin that most of what it wants to achieve in terms of fiscal union in the euro zone can be done via existing legislation, outside the Lisbon Treaty. "A lot can be done without any treaty change. You can explore all the margins of secondary legislation," said the official.

This is not any old news report, but the latest bulletin from Reuters, a report that will be replicated in thousands of news journals throughout the world, taken uncritically and regarded as gospel.

Taking on board the fact that the EU meeting is not a summit but a European Council, this is not a body which has the jurisdiction to "fix" the lack of "political union". But the dim creature that wrote the piece, and the editor who authorised it for publication, clearly do not understand the process which must be undergone before the "fatal flaw" can be remedied – if at all.

Thus, it is wholly bizarre that a supposedly reputable news agency such as Reuters should be raising expectations in this way. In the terms presented, the "European leaders" can only fail. The task they have been set is unachievable.

If though, the Reuters report represents market expectations, then we are in for a torrid time. Once the news of the failure has been digested, we should expect upheaval, a rupture of the common currency and global economic fallout.

Is this what the news agency wants? It is certainly doing its best to achieve it.