The future pattern of events is unclear in the Euro economy from many points of view, but what is coming clear is that the EU has decided that Euro countries will be allowed to default at bank level as a deliberate policy. Senior bond holders at banks, who are predominantly sovereign wealth funds, and banks from other countries are going to be sent down the river. This will mean that EU countries in the position of Ireland where the banks are bust, won’t, in future, have to carry the debts of their banks, as, so far, Ireland and Britain have been made to do. The banks will soon be allowed to default, and simply refuse to pay the bondholders.
This is charming. Most of the senior bond holders will be sovereign wealth funds such as Japanese and Chinese. Many will also be German and British banks. But while German banks will, in turn, be allowed to default and refuse to pay their bondholders, British banks, no doubt, will be expected to accept the losses and protect their banks’ bondholders, and the losses will again all be borne by the British taxpayer….unless, of course we join the Euro, when we could join in the general banking default, and enjoy the protection of the world’s central banks.
Otherwise Sterling will, no doubt, be hung out to dry. Our own bond rates will skyrocket, raising interest rates through the roof.
The pressures to join the Euro will never be greater.
Are the Coalition government ready to face this?
Somehow I think they could well surrender to the pressure. The only other course available to the British government will be to decide to default itself, and restart borrowing in the world’s markets, with the £ at a much lower level. That would be my preference. At least that would bring an end to our involvement with the mess that the Euro will inevitably remain, even after a mass banking default.
Open Europe –
The Commission yesterday released a consultation paper proposing new powers for national regulators to take over failing EU banks, sack board members, and impose haircuts on senior bank debt, the Telegraph reports. The Commission has put forward legislative proposals for a harmonised EU insolvency structure, which could be in place by 2012.