Surely the dire prognostications of your previous link will mean that governments will want to do what they can to avoid a break-up?

A breakup is surely unavoidable.

It was interesting to note that Berlusconi is considering a comeback on a return to the Lira ticket. That will probably come to nothing, but it shows that politicians are now actively weighing up the potential political benefits that might come about through opposing Euro membership.

Sassenach wrote:A breakup is surely unavoidable.

Nothing is written in stone. It's interesting that the Germans have blinked a bit.

If the Germans agree to Eurobonds then all it will achieve is to drag them down with the rest.

When did everything get so predictable and deterministic?

If things go bad in Europe, it will affect Germany anyway. They may be a successful exporter, but they are so because their currency is cheap and largely because they sell a lot to Europe. Their banks are no less invulnerable than anyone else's to sovereign debt and over-exposed banks.

So they may as well be part of an attempted solution.

Only if it's actually going to be a solution. Eurobonds would just be a sticking plaster at best, at worst it would be a way of spreading the cancer from the sick economies to the healthy ones.

Be realistic Dan, the German people are never going to support the idea of assuming everybody else's debts. Any German government that agrees to it will lose the next election by a landslide. That would then create a massive political crisis that would spook the markets far worse than the Greek situation and the whole rickety structure would come crashing down. Merkel is quite right that you can only have Eurobonds after fiscal and political convergence, not beforehand. It wouldn't be either politically or economically sustainable otherwise.

Too little, too late.

I'm feeling pretty confident about January 1 (sadly). I think things will accelerate over the next month or so. Going to be a very scary few months.

Who could have predicted all this? Oh, that's right...me.

It still hasn't happened yet, Nostradamus. I'd save the smug self-congratulations until (and only in the unlikely event, if) it turns out you were right.

Anyway, it's a good job that banks are all fine upstanding institutions who would not fiddle interest rate reporting to influence the LIBOR, EURIBOR and other standards rates, eh? Barclays is just the first to get fined, and it will not just be an Anglo-American bank that's been at it.

Heaven forbid that anyone use that as a case to suggest tighter regulation of investment banking and greater international co-operation, though.

It still hasn't happened yet, Nostradamus. I'd save the smug self-congratulations until (and only in the unlikely event, if) it turns out you were right.

Doesn't seem nearly so unlikely as it once did, though, does it? Check back in a month and it'll seem less unlikely, still.

Heaven forbid that anyone use that as a case to suggest tighter regulation of investment banking and greater international co-operation, though.

Heh. It's worth noting that Lie-bor was developed with the cooperation of the Bank of England to promote greater international cooperation (and, in part, to facilitate regulation), and that it is increasingly obvious that the BoE (which I do seem to recall is part of your government) has been at least complicit, if not actively involved in, the ongoing mis-reporting (which, btw, was completely obvious to anyone and everyone in the financial services industry as soon as "libor floors" came into vogue back in 2008).

Who regulates the regulators?

1. The BoE is independent, having been made so in 1997.
2. While there are allegations, I've not seen anything to substantiate complicty at the BoE
3. The Libor rate is set by the British Banking Association
4. The Financial Services Authority is the regulator
5. In Barclays at least, my main concern is that the Compliance department didn't pick it up.

But yes, who regulates the regulators is a good question. Clearly 'light touch' as we had here and you had in the US does not work. Good to see your regulators take the lead on this issue and deal out heavy fines. And let's not assume that it's only British banks who are guilty, eh?

I read an interesting fact the other day. It's not directly related to our discussion of the Euro but it raises an interesting question and this seems as good a place as any to ask it.

Apparently, such is the extent of the QE splurge that the BoE has indulged in recently, it's now estimated that roughly 1/3 of the entire national debt of the UK is held by the Bank. Notionally independent or not, this effectively means that the government has printed money on a collossal scale to buy it's own debt. The question is, why can't they simply cancel it ? I'm assuming the answer to that is the fear of inflation, but at the same time you'd assume that the very fact of pumping £350 billion of new money into the banking system would be inflationary anyway, and we haven't really seen much evidence of that. So as we now own 1/3 of our debt why do we continue to pay interest on it, and what happens to that money ?

Well, the interest rate will be low for now, and the idea is to reverse the QE later on (not sure exactly how that would work) and it would be deflationary if it reduces money supply. So a combination of writing off and reverse QE could ne roughly neutral.

However, the BoE is also using QE to buy gilts from the private sector. These gilts are government bonds, which would be sold by HMG anyway, but this way the yield goes to the BoE. But it means that the BoE can lend to all those banks that are still in trouble, at a lower rate.

We'd be paying the interest anyway, as taxpayers, on government debt and deficit. All QE does in that regard is to alter who is the owner of that debt and to push the private sector toward higher yield investments. Oh, and hold down the rates of interest on government bonds, which helps a bit too.

There are other effects of QE, of course, such as a tendency to inflate and the question of whether it simply masks problems that will come out in the future.

Mach - I forgot to mention, Libor was indeed coming under suspicion in 2008. That's when the regulators started to look in to it after allegations, some of which appeared in the US press. Not wanting to pre-empt the full investigations, it's clear that for Barlays at least the main instances of Libor fixing took place before 2008.

It remains to be seen, but it may turn out that regulatory scrutiny since then has put a lid on it. in the meantime, you have ample opportunity to check up which institution it is that actually does what. For example, the BBA is a private body, an organisation whose members are banks, and it set the rules for Libor (working withe the BoE among others, yes) and oversees it. They did outsource the data collection to Thomson Reuters. The chairman of the BBA is Marcus Agius, who by a sheer coincidence is also the chairman of... Barclays. While the BBA is 'British', it has many foreign banks as members. The BoE is not one of the member banks, and so that's presumably why they were explicitly involved in discussions about how it is set up.

Please review my prior post, Dan. I believe you will find that it is scrupulously accurate (except in the small matter of my intentional misspelling of "LIBOR"), but to clarify, since you want to split hairs, the Bank of England is a nominally independent public organization, but is wholly owned by the Treasury Solicitor on behalf of the Government. Accordingly, it is just as much an agency of the UK's government as the Federal Reserve is an agency of the government of the United States.

Note also that the technical day-to-day "regulator" of federally chartered US banks is the Office of the Comptroller of the Currency. That does not, however, mean that the Federal Reserve, which, like the Bank of England, largely concerns itself with monetary policy (including interest rates) is not a "regulator" of banking in the ordinary sense of the term.

Machiavelli wrote:Please review my prior post, Dan. I believe you will find that it is scrupulously accurate

So you have evidence of BoE complicity in rate-fixing then? Because you made that assertion without caveat or reservation.

That is probably the most problematic of your statements in that post.