Dear reader,
as provocative this sounds it is important to see that the situation is dramatic within the eurozone and in order to not spiral rapidly downwards from austerity measures to decline in economic activity to less tax income for the states involved to more austerity etc etc some are calling to open the „flood gates“ in order to transform thee ECB to a lender of last resort for all member states needing help with unlimited resources but with the risk of inflation. Inflation is indeed compared to the other alternatives we face right now to be almost neglected.
But this transforming process of the ECB to some kind of FED is prohibited by current constraints in European laws such as the Maastricht treaty and the Lisbon treaty. It is also most problematic in regard of the incentives it gives to states not to perform the necessary steps to bring their out of control budgets at least to a reasonable, sustainable level. Most if not all economist agree that is sheer impossible to achieve better debt to GDP ratios without growth of their economies and therefore reduction in spending for benefits and higher tax income from good performing companies.
As we could experience much to our displeasure that politicians if they move at all in the right direction they need tremendous amount of time for almost as if they were to compete with snails who can crawl slower. That is IF they want to change the way of things are being handled in their countries for decades now which mostly comes down to blow up public „services“ (=bureaucrats) and not only putting tremendous expenses on the current workforce of state employees (as if that alone weren't bad enough) but also to put tremendous obligations for future budgets to pay a large chunk of the federal budget to future pensions (A fact that according to human nature nobody wants to see right now) Italy had a gigantic problem in the past and only partially did something about it (see reference section below) and also states currently not under everyones microscope such as Germany have a hidden „time bomb“ under their rug which is pensions which build up for the next 20 years somewhere in the region of 1.2 Tn (yes trillion) € (* put in reference section*)
According to the developments which led to this current total mess of states spiraling into debt situations they no longer can sustain and also where no one with some brains will lend his/her money without at least a glimmer of hope that the money given for some months or years is going to see its former owner back. So the problems dragging on for years now created foremost a total collapse of trust in the steerability of states by politicians and on thee long run this might change but unfortunately we don't have that much time at our disposal right now to wait that things will get better one day in order to regain that trust. Meanwhile the economies of those countries in immediate danger of „drying out“ ..first of further funding for governmental expenses but shorty afterwards their banks and even worse their private sector with production, trade and services. So if there strict restraints applied to get those states back on track this would almost inevitably lead in economic collapse or if lucky to drastic decrease in GDP.
Thinking of massive restraints put on a state not to be able to expand his budget (=fiscal policy) and also harsh restraints on the central bank of this country in order to widen the outflow of money into the economy (=monetary policy) the author remembered that there are many similarities to the restrictions put on Germany and its national bank during the 1930 as a result of the obligations to fulfill in connection with the treaty (some say dictate) of Versailles. Without making large excursions into history (which is much to the liking of the author) it can be said that the German government then employed Hjalmar Schacht first as president of the Reichsbank (central bank) and later secretary of economy under Chancellor Hitler who was considered to be a „financial genius“ by circumventing the strict rules the treaty of Versailles put on Germany in order to prevent the country to regain problematic economic and therefore military capabilities. So the prospects for the country at the beginning of the 1930s were rather bleak not only because it was prevented by the Versailles treaty but also because it experienced the outfall of the big crash 1929 (black Thursday) and the following depression. So with declining economic prospects and ever increasing unemployment and the legal obligations to obey which restricted the budget and the policies of the central bank alike Schacht brought up a plan to his superiors (which we all know today) which would make it possible to comply formally with the rules laid out by the States of the Entente. Only once the author remembers the reader that a similar „uprising“ took place 1923 with the result that triggered the hyperinflation. So Schacht looked into another covert possibility to finance the German economy but especially the heavy industries needed to regain military strength. He did so by encouraging four leading German industrial firms to establish a company which in fact was granting other companies unlimited resources by giving out discountable changes which were also accepted to refinance by the Reichsbank. This company with a de facto role of a „covert central bank“ was called Metallurgische Forschungsgesellschaft mbH (Ltd)
[update Nov 13th]
While reading reports today of Germany attracting skilled workers from the south of Europe e.g. from Greece and other countries in trouble i thought of another "false" incentive which further accelerate the virtual divide going right through the eurozone. Just as reports of ever lower yields on German bunds as investors dump e.g. Italian bonds. It is widely believed that investors are on the search of safe havens and one way of offering such a "safety net" would be to add something else to the INTENDED "bazooka" which is the enhanced EFSF. Instead of using the model explained above as "provocation" it's plausible to me to put an "eurozone investment fund" in action which sell shares to shareholders but commit itself for the time being at least to fund projects of the private sector such as the energy sector (as described below) and gives investors an alternative on the one hand but insures the southern countries that withdrawn/withhold money from state funding shifts to private sector of exactly those countries (and create additional tax income) And it's possible for such a "bazooka fund" to get shareholders of industry aboard and to initiate a project but during the realization phase to sell parts of power lines ,power stations, pipeline, toll roads, etc to smaller private exploitation companies and get back prefinanced cash. If it gets additional banking license from ECB (such as Siemens and others did already) it can also tap into the resources of ECB)
It's not about the method but the results !
[update 1945 CET]
Only hours after I posted it i found this article by Reuters:
UK seeking $80 billion infrastructure boost - report
I swear i posted my ideas FIRST, but it seems not so far fetched then !
[/update]
[/update]
Coming back the present: Without going into the technicalities at this moment the idea of refinancing the heavy industries part of an economy without a involving lending to state level has its charme in order to form a counterbalance to drastic measures of austerity for the states which blew up their public spending by ever increasing numbers of state employees and granting benefits to citizens which are way out of line. So what is wrong in the current situation to use a centralized (but no need nowadays for covert action) fund with unlimited resources to function as a lender to industries of those countries forced to cut down their budgets. In order to be able to ax on thee one side state employees but being able to pick up some of them by private sector not forced to deflate or even to go bust. And some credit inspired growth on itself produces revenues to flow to the treasuries of the countries involved.
Of course it is also a good idea to combine forces by e.g. rapid implementing the plans of EU Energy Commissioner Oetttinger who addressed a gigantic need for EU wide investments in the energy sector with a total sum of about 1 bn €. At least for Italy which is a net importer of power it comes handy to refurbish or even rebuild their power net also to avoid future wide spreading black outs which already occurred. Also it might be a good idea for Italy not to be dependent in future from spikes in summer temperatures and long dry seasons where some rivers like the Po are likely to dry out to the point that the production of hydroelectric or even other fossil based power becomes impossible. So there isn't a lack of ideas also with some prospect of „refinance“ but just a lack of creativity and perhaps also will to change things to thee better by politicians which are way better off with decreasing funds to their disposal. It is the authors firm believe that money is better spent by the private sector which by the way are not that deep in debt in Italy as the state with its current 120% debt/GDP (*figures to be added*).
In addition to the reshaping of Italian power infrastructure there is one other important project in the pipeline which had before the so called "arab spring" a problem of influence by arab dictators on European power supply if this project was realized under the reign of those now deposed autocratic rulers. So this obstacle is just gone in a number of states thee project was designed to be set up: Marokko: King announced major political reforms, Tunesia: Ben Ali gone , elections just held, new government likely in a few weeks, Libya: Ruler died, NTC preparing transforming country into democratic state, Egypt: Mubarak deposed, military council at present but good outlook for transition into civilian democratic state. So if you look to the references section further below or specifically on the map of the Mediterranean region you will see what importance Spain, Italy and Greece have for future transit countries of electrical power and also able to produce a chunk of electricity for themselves. By doing so it also possible to bill citizens additional taxes in those countries like Italy or Greece where tax evasion is a wide spread problem. In Greece as far the author knows this has already been implemented to collect the taxes at least for the short term via electrical bills everyone just have to pay in order not to get disconnected from the grid.
To be clear about production of electricity in those debt stricken southern European countries: They shouldn't produce electricity to be transferred to the north and used there but for their own grid which is in urgent need of investment anyway. Besides it also produces revenues which stay in the country and can contribute to higher tax income for the state. And besides it doesn't require to transmit electricity hundreds of miles to the north where local consumption e.g. for air conditioning systems in the summer is perfectly matched by producing electricity from the suns power and reduces the need for long transmission routes since production and demand can be balanced more on the low to mid voltage level of local distribution. So they can cash in from to sources: own production for local needs and getting transit fees for thee use of highest voltage DC international grid.
Besides it is considered easier to find buyers for shares in large infrastructure projects in the energy sector which produce some guaranteed income whereas wage bills payed , benefits etc by states are pretty much subject to vaporisation ;-)
In addition to the reshaping of Italian power infrastructure there is one other important project in the pipeline which had before the so called "arab spring" a problem of influence by arab dictators on European power supply if this project was realized under the reign of those now deposed autocratic rulers. So this obstacle is just gone in a number of states thee project was designed to be set up: Marokko: King announced major political reforms, Tunesia: Ben Ali gone , elections just held, new government likely in a few weeks, Libya: Ruler died, NTC preparing transforming country into democratic state, Egypt: Mubarak deposed, military council at present but good outlook for transition into civilian democratic state. So if you look to the references section further below or specifically on the map of the Mediterranean region you will see what importance Spain, Italy and Greece have for future transit countries of electrical power and also able to produce a chunk of electricity for themselves. By doing so it also possible to bill citizens additional taxes in those countries like Italy or Greece where tax evasion is a wide spread problem. In Greece as far the author knows this has already been implemented to collect the taxes at least for the short term via electrical bills everyone just have to pay in order not to get disconnected from the grid.
To be clear about production of electricity in those debt stricken southern European countries: They shouldn't produce electricity to be transferred to the north and used there but for their own grid which is in urgent need of investment anyway. Besides it also produces revenues which stay in the country and can contribute to higher tax income for the state. And besides it doesn't require to transmit electricity hundreds of miles to the north where local consumption e.g. for air conditioning systems in the summer is perfectly matched by producing electricity from the suns power and reduces the need for long transmission routes since production and demand can be balanced more on the low to mid voltage level of local distribution. So they can cash in from to sources: own production for local needs and getting transit fees for thee use of highest voltage DC international grid.
Besides it is considered easier to find buyers for shares in large infrastructure projects in the energy sector which produce some guaranteed income whereas wage bills payed , benefits etc by states are pretty much subject to vaporisation ;-)
So PLEASE start hitting the bureaucrats and pampering the private sector !
*= trade bill actually, but in many europ. languages it's the same word for this payment instrument as for change.We need whatever instrument for change away from refinancing ever growing state debts to (in current world depression looming) unlimited funding of the economy.
related articles:
1000 Milliarden für die Energiewende
Exclusive: EU's Oettinger plans 1 trillion euro energy revamp
Blackout Stromausfall: Fast ganz Italien im Dunkeln
http://en.wikipedia.org/wiki/2003_Italy_blackout
Exclusive: EU's Oettinger plans 1 trillion euro energy revamp
Blackout Stromausfall: Fast ganz Italien im Dunkeln
http://en.wikipedia.org/wiki/2003_Italy_blackout
http://en.wikipedia.org/wiki/Desertec
Greek MPs approve deeply unpopular property tax 'with a heavy heart'
Siemens erhält seine eigene Banklizenz
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Greek MPs approve deeply unpopular property tax 'with a heavy heart'
Siemens erhält seine eigene Banklizenz
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