03 November 2011

October 2011 Economic Crisis Month in Brussels Report

The eurozone economic crisis is set to continue for quite some while until public finances are manifestly on a sound path. Then there must be a fundamental re-think about how the financial system was corrupted by excessive public debt. So GrahamBishop.com will now separate monitoring and analysis of financial services regulation from the aspects of the economic crisis that will be relevant to it. These topics will include economic governance, Council and Parliament statements on the powers of the eurozone and financial regulators, issues about financing the eurozone, comments on states “at risk”, the international context, and the thoughts of some leading commentators.

We are distributing this new publication to our existing subscribers to the “Financial Services Month in Brussels” initially. Please contact office@GrahamBishop.com if you wish to receive our “Economic Crisis Monthly” from next month onwards.

The breaking news on the Greek referendum is dramatic as the consequences could be historic. On November 2, CNN published my article[1] and events continue to move rapidly. Unsurprisingly, EU leaders have now made it clear that they will not disburse more funds until Greece has arrived at a final decision. However, the remarkable part of the statements is that Greece has been asked to decide whether it wants to remain part of the euro, rather than leave the European Union. As the Treaty stands, there is no legal basis for Greece leaving the euro – except by leaving the EU.

If the French and German leaders really wish to find a way to enable a state to leave the euro only, then they may have created a monumental risk for the eurozone. This would be an eerie parallel to October 2010 when they turned Europe’s financial system upside down by walking along the beach at Deauville without any economic advisers, and then announced that government debt would not be “risk free” after all. That moment sparked a wholesale revision in attitudes to European Government debt – with ramifications that are still developing.

If they have suddenly decided to change the legal basis of the eurozone, then the ultimate consequences could be equally unpleasant as the markets test which state will be next to leave and stage a competitive devaluation.

Graham Bishop

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[1] CNN: Staring into the abyss - What if Greece rejected austerity? View

© Graham Bishop