IMHO due to the inevitability of the EU collapse, it is essential that we leave with No Deal. IMHO they're not going to give a free trade agreement, as if Italy follows the collapse will be sooner, rather than later.
Target2 will bring down the EU pack of cards eventually IMHO.
The Quora link gives a simple explanation of the stupidity of Target2 IMHO :-
The easiest way to understand Target2 balances is to discover how they come about. You’ll realise just how odd the whole thing is.
There are two ways. The first is to do with trade.
When a Greek buys a German car, he sends money to Germany and gets a car in return.
The eurozone monetary system now has a problem. The amount of euros in Greece has fallen and the amount of euros in Germany has risen. This couldn’t happen if each country had its own currency, as that currency would only be valid in their home country.
If Greece continues with a trade deficit over time, it’ll eventually run out of euros. Which is a terrifying prospect for economists. So they send the money from Germany back to Greece via the Target2 system.
To record the transaction of euros flowing back south, Germany gets a Target2 asset and Greece a Target2 liability. In a way, Greece gives Germany a very abstract “IOU” for the money sent to Greece.
Over time, as the trade deficit continues, Germany’s Target2 assets build up and Greece’s Target2 liability builds up.
In theory, the trade balance is supposed to reverse… eventually. Olive oil exports sold to Germany become bigger than German car exports sold to Greece. The Target2 balance trends back towards 0. No problems arise.
The trouble is, the Target2 system has abolished all the natural forces which make trade rebalance over time. The exchange rate between Germany and Greece cannot adjust to encourage Greek exports and make German cars more expensive in Greece. They’re both on the euro.
Because Target2 is nothing but an accounting entry, it effectively costs Greece as a country nothing to buy German cars. The money they paid Germans flows straight back into Greece via Target2. So the Greeks can go on buying more German cars.
The Germans are being robbed, and they’re financing Greece’s trade deficit at the same time. Without any hope of that trade deficit reversing. Which means the Greek economy is kept in the doldrums, unable to rebalance and return to economic growth.
The link doesn't always copy for some reason.
Similarly, Otmar Issing, the ECB’s first chief economist and one of the founding fathers of
monetary union, admits that the ECB is becoming dangerously over-extended and the whole
euro project is unworkable in its current form:
One day, the house of cards will collapse. The euro has been betrayed by politics, the
experiment went wrong from the beginning and has since degenerated into a fiscal
free-for-all that once again masks the festering pathologies. Realistically, it will be a
case of muddling through, struggling from one crisis to the next. It is difficult to
forecast how long this will continue for, but it cannot go on endlessly…The Stability
and Growth Pact has more or less failed. The moral hazard is overwhelming. Market
discipline is done away with by ECB interventions. There is no fiscal control
mechanism from markets or politics. This has all the elements to bring disaster for
monetary union. The no-bailout clause is violated every day and the European
Court's approval for bailout measures is simple-minded and ideological.…The ECB
has crossed the Rubicon and is now in an untenable position, trying to reconcile
conflicting roles as banking regulator, Troika enforcer in rescue missions and agent
of monetary policy. Its own financial integrity is increasingly in jeopardy.
The venture began to go off the rails immediately, though the structural damage was
disguised by the financial boom. There was no speed-up of convergence after 1999 –
rather, the opposite. From day one, quite a number of countries started working in the
wrong direction. A string of states let rip with wage rises, brushing aside warnings
that this would prove fatal in an irrevocable currency union. During the first eight
years, unit labour costs in Portugal rose by 30% versus Germany. In the past, the
escudo would have devalued by 30%, and things more or less would be back to where
they were. Quite a few countries – including Ireland, Italy and Greece – behaved as
though they could still devalue their currencies. The elemental problem is that once a
high-debt state has lost 30% in competitiveness within a fixed exchange system, it is
almost impossible to claw back the ground in the sort of deflationary world we face
today. It has become a trap. The whole Eurozone structure has acquired a
contractionary bias. The deflation is now self-fulling. The first Greek rescue in 2010
was little more than a bailout for German and French banks. It would have been far
better to eject Greece from the euro as a salutary lesson for all. The Greeks should
have been offered generous support, but only after it had restored exchange rate
viability by returning to the drachma. [The fear was a chain-reaction reaching Spain
and Italy, detonating an uncontrollable financial collapse. This nearly happened on
two occasions, and remained a risk until Berlin switched tack and agreed to let the
ECB shore up the Spanish and Italian debt markets in 2012.]
Cloaking it all is obfuscation, political mendacity and endemic denial. Leaders of the
heavily indebted states have misled their voters with soothing bromides, falsely
suggesting that some form of fiscal union or debt mutualisation is just around the
corner. Yet there is no chance of political union or the creation of an EU treasury in
the forseeable future, which would in any case require a sweeping change to the
German constitution – an impossible proposition in the current political climate. The
European project must therefore function as a union of sovereign states, or fail.
The previous post and the continuation above are copied from pages 39 and 40 from the link below:-
You are absolutely right Madpunter, why anyone would want to remain in the failing EU is beyond me. They clearly know very little about how it functions and how close it is to collapsing. They break all their own fiscal rules to keep the experiment going. I recommend people read a book called "How The Euro Dies" by Nikolai Hubble. Explains in very simple terms Target two and its consequences. I have never believed in a single currency. Countries are, culturally, so different that a one size fits all approach is ridiculous. The poorer, southern countries need to be able to devalue their currency or change their interest rates in order to become competitive, but they are unable and as a result are yoked to a perpetual cycle of debt and poverty History tells us that this will eventually fail. France, Germany and Italy have tried this in the past, !9th Century, without success.
Simple economic rules which are being broken by the EU, known as the unholy trinity, as such it is doomed to failure. Beyond this it is a giant Ponzi scheme, authoritarian and an undemocratic gravy train.
Ferring48 - I have the book on order already. I knew the Italian banking system was in dire straits after reading about Banca Monte dei Paschi di Siena, but hadn't heard about Target2 until recently. The only way the system could work is with a rapid change to a United states of Europe, which isn't going to happen with the increase in Nationalism in Italy, Austria France etc. Alternatively, if a two tier system with the PIIGS in a separate currency devalued from the current Euro, then it may work. However, IMHO there's not enough time to move to a two tier system, as the macro economics through world recession (through a trade war between China and the US ) will force Italy's hand. I just hope we're out of the EU before it happens.
Sovereign-Bank Doom Loop
Italian banks dumped 40 billion euros of Italian Sovereign Bonds in the last 3 months of 2017 (reported by Jefferies), causing a run on the bonds by foreign investors in 2018. The Italian banks then bought back some of the bonds, as if the bonds fall in value, it affects the banks and if the banks run out of money the government must bail them out. The only solution is for the ECB to buy the Italian Government Bonds, but it has already broken the rules by buying too much (How the Euro Dies. Nickolai Hubble).
Italy also has a problem due to about 300 billion Euros of bad debt (see reuter's link) and Banca Monte dei Paschi di Siena (world's oldest bank) had to be bailed out with £20bn. IMHO when coupled with a lack of growth through Target2, this will eventually lead to Italy crashing out of the Euro, as the market for Sovereign-Bank Bonds is not strong enough for a bail out.
Why Italy could crash out of the Euro
1) More than 2 Trillion Euros and 132% of GDP.
2) Over 300 Billion Euros of bad debt (Banca dei Monte dei Pacha de Siena, the oldest bank in the world has dropped from around 90 billion Euros in value to around a billion).
3) Target2 debt of around 436 Billion Euros (a loan without interest and no obligation to pay).
4) Italian banks are dumping government bonds, with 40 Billion Euros of Italian sovereign bonds dumped in the last three months of 2017.
5) The ECB is buying Italian government faster than is allowed under it's capital key rules.
6) In March 2018 Italy could borrow money for less than the US government, despite being a higher risk, due to the ECB, yet the US Federal Reserve had already stopped its purchase of American bonds.
7) Italy spends 10% of revenue on interest (4% of GDP), double the OECD average and the highest in Europe in the last 6 years.
8) There's been a triple-dip recession since 2008, with unemployment over 10% and youth unemployment over 30%.
9) The future's gloomy as well, with the IMF estimating that it will take another decade for the economy to recover to pre-2008 levels.
10) Italian debt and the cost of debt are growing faster than the economy.
Nickolai Hubble (2019) How The Euro Dies
The price of gold is rising and some 10 year and 30 year bonds have negative interest, because the rich know that a crash is coming. The US trade war with China may reduce trade and world growth, but IMHO the crash will trigger with Italy bailing out of the Euro. Yet the politicians want to keep us in the EU, where we will suffer more when this happens. Even Alan Greenspan said in 2016 that at some point somebody's going to say, "I don't want to accept Euros."
Psi sadly Monte Fiasco is where I bank. My joint account has been frozen since my wife died in January. Standing orders got frozen against their promise. Lloyds defrost my wife's sole account with letters of administration a and sent money from Grey Street to Bognor in about 10 minutes. The local George V avenue branch is superb. All female staff.
BruceJamieson - It's bad enough to lose someone you love, without that added turmoil. Thankfully, when my mum died recently, sorting out her bank account was relatively straight forward.
An interesting view of the EU posted on the FRR bb by AJamesW yesterday @ 09:27 :-
RR your welcome to your views on the EU and for that matter FRR which I agree with the latter.
But the trading block we joined in 1972 has changed into an appointed Oligarchy and is continuing to change into a Country in its own right which it will do so via Qualified Majority Voting after 2020.
Every other country has carried out referenda on the various changes, some voting several times to get it right. This country has not been given that opportunity, what has happened is that our Parliament over tens of years has carried out a gradual transfer of powers to this wanttobe country in waiting, without consulting the people directly on such a transfer of national powers.
In addition, our parliament stuffed with Federalists (320) MP where taken by surprise by the strength of feeling against such a transfer of power during 2016 arranged a referendum THEY COULDNT LOOSE to confirm that the UK would stay in the EU, come what may.
It hasn’t worked out that way, Parliament has finally revelled its self to be nothing more than a veneer hiding the unacceptable face of an absolute establishment dictatorship which wants to be a founding member of the, to be EUSSR.
I fear you are right, we are now in a very dark place politically in this country, virtual slaves of the European Oligarchy.
Unless Parliament is renewed by a General Election made freely by the people to loan their authority to Parliament to govern for a further term of office, and to take action regarding the manifestoes presented to the people, then otherwise, this country will descend into rivers of blood, not over race, but over nationhood or vassalage to an EU Oligarchy they have no democratic control over. 1603 History is repeating its self over Absolutism, with a 2nd Republic not far away.
BoomerBower made an interesting point @ 06:17 on the LLOY bb :-
'.. the good news is whilst Boris is legally obliged to ask fir this pointless extension he himself can veto it.'
Maybe followed by a quick election to clear the swamp. I just hope it happens before Italy defaults on the Euro, which IMHO is a case of 'when', not 'if'.
Shania - Not everyone is blind to it. Hence the rise of AFD, which although it looks like a far right party to most people, also contains many who are not racist, just disillusioned with the EU. Hopefully they don't become too powerful, as we all know what happened last time a far right party was elected.