The French Regret Loss Of The Franc

In answer to, one has to admit a slightly leading question, "Eleven years after the introduction of the euro, do you regret the loss of the franc?" the French news website, Atlantico, has a poll which found that 62% of French people now regretted the loss of the French Franc. As shown in the table above (click to enlarge) in 2002, just 39% regretted the loss of the French Franc.

Such numbers are obviously not surprising given the Eurozone turmoil, but it is a reminder of the precarious position the EU finds itself in. To govern a country, or a population, you need either consent or fear. The EU has neither.

So launching a fundamentally flawed currency in those circumstances is folly on sticks. This poll merely demonstrates once again that the concept of the EU is built on sand, and when it starts to all go wrong it has no where left to go.

hattip: The thoughts of an independently minded MEP

Last Man Standing

Contagion contagion everywhere; Spain is being hit with ever higher borrowing costs, so has Belgium, and Italy - bond yields which are again above the 7% level - and Portugal and so on. The markets have already assumed that France will lose its treasured AAA status. Then this morning contagion has hit the last man standing - the benchmark - Germany. 'A disaster' is what the German bond auction is being called (my emphasis):

LONDON, Nov 23 (Reuters) - German government bonds fell sharply on Wednesday after investors shunned the country's auction of new 10-year debt, signalling that the fast-spreading euro zone crisis was eroding the safe haven status of German debt.

Germany drew significantly less [sic] bids than the amount on offer for its Bunds, with investors deterred by very low yields. The euro zone powerhouse was caught between the best and worst possible scenarios on the euro zone crisis.

"It is a complete and utter disaster," said Marc Ostwald, strategist at Monument Securities in London. "If Germany can only manage a 0.65 cover in actual terms for what is going to be their next benchmark then what hope for everybody else?"

"It really tells you that the Bund yields are at the completely wrong level ... never mind that they are a safe haven. There's certainly a partial element of 'they (investors)would rather not have euros' in there."

The decisions by Germany are essential to the survival or otherwise of the Euro. As argued before on this blog, Germany faces an impossible position; it wants the survival of the Euro but is unable to take the steps necessary to ensure this. In a great piece Acting Man calls it An Intractable Problem.

The EU of course is arguing for more integration via Eurobonds as a solution:

The EC is launching a consultation to assess if the 17 eurozone countries can issue the bonds to raise cash.

Mr Barroso's 'stability bonds' plan would see much more investigation and control of the budgets of countries within the eurozone, to avoid a repeat of the bailouts and crises affecting the region.

But the EU must know that this would be illegal under German Constitutional Court rulings, it makes one wonder whether not only is this the last desperate throw of the dice for more integration but the laying of the groundwork for the blame game when it all goes pear shaped - that it was Germany's fault for not listening to the EC and its 'messiah' Barroso. The collapse of the Euro will cause enormous political ramifications and fallout.

The Financial Times has interesting piece that the markets have effectively 'smoked out' a stealth operation by the Bundesbank to try to control the German bond market, which spectacularly failed this morning:

That, alongside the fact that the Bundesbank is retaining an ever greater share of bonds from auction, suggests only one thing to the logical mind. It is the Bundesbank which is cornering the bund market on purpose. And it’s doing so to ensure that the one last repo rate in Europe that can be controlled remains suppressed.

The rate is important to suppress because almost all interbank funding is now done on a secured basis against the best quality collateral. Which implies two important points: 1) that the ECB itself has lost control and depends almost entirely on the Bundesbank to enforce its low rate policy target and 2) that the Bundesbank is having to retain more bunds from the market than ever before just to ensure the last functioning repo rate in Europe doesn’t spiral out of control.

That, we would say, is a big deal.

Whatever the case, Wednesday’s auction suggests the Bundesbank’s stealth operation has finally been outed. The question is, will the Bundesbank now be broken too?

One thing is for sure, though, now that Eurozone contagion has infected Germany, it's game over.

"I'm Mad"

Despite the EU's overtly anti-democratic manoeuvres last week to tell Italy and Greece what Government they should have, it hasn't worked - the Euro crisis continues unabated, contagion has hit Spain, France and Belgium. It's getting to the point where it's easier to list the Eurozone countries that aren't in trouble.

It's clear that the EU or member states cannot take the necessary measures to stem the crisis - they are sleepwalking into Euro meltdown where the consequences will be massive but are largely unpredictable.

I should be magnanimous in these times, but I'm afraid I can't be. I don't for one minute enjoy the consequences of the chaos on the impact on jobs and the economy but what is amusing is the ever desperate rhetoric from those that have always supported the Euro - Nick Clegg (my emphasis):

It means absolutely nothing to millions of people across the EU who are worried about economic security. They are worried about prospects for their children. The only people who will benefit will be populists, chauvinists and demagogues, who will exploit that lack of political leadership."

Oh here we go - more labels, more insults. This is why, after decades of abuse for trying to argue against a flawed system of government and currency thus being inundated with abuse I have little sympathy. The battle against the EU has largely been a lonely and hostile one - those in favour refusing to engage in debate but instead chuck insults about like cheap confetti at a wedding.

So it is with some amusement that I read this post from the Europhile blog EU Weekly:

I am mad and disappointed.

I am mad at an half finished euro, which has been created without any sort of exit close in the treaty – Not that I ever wish for such a close to be used, just that it is a good sign of a well thought project to have an end-point ready, just in case.

I am mad at an over-optimistic eurozone that accepted Greece despite its lag in matching the growth and stability criteria and continued to ignore the obvious reality as long as things were looking OK and the illusion could be held.

I am mad because the euro is not just a great project or a nice dream. It has become a reality, it has been built upon and brought successful growth and integration among the european states. The euro add solid results and consequences making it impossible to be dismantled or even weaken. It has to be saved, rebuild, made stronger… there is no other options.

That’s why more than anything I am mad and disappointed at the European leaders who fail again and again to tackle the problem and do what is needed to make the euro as strong as it is supposed to be. Every major actor of the financial world agrees to say that the best option is to go forward into a federalist union with eurobonds as the core of the public debt for member states, but all that Merkozy et al. are doing is finding workarounds to the issue, half-fixing the problem for a few months.

It reads like a perestroika advocate within the Soviet Union - believing that the system is fine; it just needs a little retuning.

No. The EU is flawed, it's conception was flawed, the Euro is flawed, everything about it is flawed. In years to come, when the EU and the Euro has collapsed, historians will wonder with bemusement how earth did we fall for this trick for so long?

A New Phase

Just my luck, on the day the Eurozone entered a new and more dangerous phase - yields on Italian Bonds smashing through the psychologically important 7% figure yesterday - I found myself on family business which meant I had no internet access.

Not so much as hit the buffers, the Eurozone has instead crashed right through them, as Italy enters bailout territory. One problem, it's too big to bailout. To illustrate the seriousness of this new phase, an orderly breakup of the Euro is now being seriously discussed, in effect jettisoning the peripheral countries and France and Germany going for a smaller Eurozone. But, given the glacial speed of EU decisions, events look set to overtake them - contagion is already reaching Spain and France today. It looks set to be another bloodbath.

One thing's for sure, we are witnessing European history in the making.

That Bombshell

I wrote yesterday's post about the referendum proposal in Greece in a bit of a hurry. Partly because I was at work when the news came through on my phone and partly because it was such a bolt from the blue. It completely surprised everyone even George Papandreou's own parliamentarians. But whatever the reasons behind his decision, much amusement can be had from the obvious sheer terror he invoked across the EU. Daniel Hannan writes:

I wish I could convey the sheer writhing horror that George Papanderou's referendum proposal has provoked in Brussels. Eurocrats instinctively dislike referendums. They feel that their work is too important and complicated to be vulnerable to the prejudices of hoi polloi.

A referendum at any time would be regarded by European leaders as irresponsible. But a referendum when the euro is teetering on the brink is seen as the height of ingratitude, selfishness and recklessness.

Wondrous joy. As expected the markets this morning have taken on a plummet trajectory - over two months of uncertainty now lie ahead until the vote. That Greece will default is a given, the markets have priced that in; how and when are the key questions. Now with the referendum there's another possibility that's been thrown into the mix, that in the event of a no vote that Greece could not only exit the Euro but possibly the EU altogether.

And it's the last point that means a Greek no vote is not a certainty.

Firstly it will significantly depend on the referendum question asked. If the question is along the lines of the bailout package itself and more austerity then a no vote is a likely outcome. However if the question is couched in terms of a no vote meaning exit from the Euro and the EU, and I suspect strongly that this will be the case, then the outcome is far from certain. Not only do referendums tend to favour the status quo but much scaremongering will be deployed - Greece leaving 'will be a disaster' they will cry.

Secondly the EU will use every tactic in the book; blackmail, threats, coercion and bribes. They have form on this - Lisbon, Ireland anyone? Then there's the infamous EU's last resort of; 'wrong answer vote again'.

A no answer is not guaranteed by any means.

What Papandreou has done though is start a risk of contagion of similar demands in other countries. Already, after last week's deal, Spain, Portugal and Ireland started making noises about getting more concessions from the EU as Zerohedge highlights:

...just as expected, the weakest PIIGS - Portugal and Ireland - wasted no time to start rumblings about a "suddenly slowing economy" in the aftermath of the Greek bail out which achieved nothing but to delay contagion by 48 hours and to unleash demands by everyone else to get the same concessions, in essence pushing Europe into an even deeper hole...

Confirming that the tsunami of demands has been unleashed is today's announcement from the Bank of Spain that not only was Q3 GDP flat (read: negative), but that the deficit target for the year would not be achieved.

How long before they start to make threats of referendums as well?

Another pressing problem is Italy, here the Eurozone has real immediate problems. I suspect that Greek Finance Minister Evangelos Venizelos's hospitalisation due to stress related health problems won't be the last amongst Eurozone politicians.

That Deal (2)

Again, according Zerohedge, the EU's numbers don't add up (this is where the July bailout deal fell apart). The proposed 50% haircut on Greek debt (which hasn't even been agreed yet) is not even 50% but only 28%. Here's his post in full (his emphasis):

Just the math, something Europe is unable to do:

• Greece has €350 billion in total debt including about €70 billion in Troika "post-petition" loans; these are untouched.
• Of the €280 billion, roughly €75 billion is held by the ECB: this, like the Troika loans, will be untouched.
• This leaves just ~€200 billion in actual debt to undergo a haircut.
• Apply a 50% haircut to this debt (ignoring the fact that of this about €35 billion is held by Greek pension funds, and once the realization that Greek pensions have been cut in half dawns upon the population, the result will be the biggest riots ever seen in Athens yet).
• Total debt to be cut: just about €100 billion.
• Hence, of the total €350 billion, just €100 billion is eliminated, most of it used to backstop and service Greek pension and retirement obligations
• €250, or the residual, of €350, the original, means 72%, or a 28% haircut.
  
• Greek GDP was €230 billion on December 31, 2010 and declining fast.
  
• And that is how a 50% haircut is "cut" almost in half

But no worries, shares are all up strongly this morning, so everything must be rosy in the garden.

Quite Mad

As predicted by anyone who is 'barking mad' it would seem that today's crucial EU meeting, which apparently would solve all the EU's problems' will end with ...er...well nothing resolved at all. Actually they can't even do the fudge bit right - it's collapsing in chaos. The Telegraph reports:

...leaders last night appeared to be little closer to settling their long-standing differences on those issues.

That firmly comes under the category of no shit Sherlock. But don't worry chaps, we have another meeting this weekend. So that's now a meeting about a meeting about a meeting. I think. I've lost count.

All of which is highly reassuring when, the Italian Government is close to collapse, Italian bond spreads are once again approaching the danger levels of 6%, Portugal is entering Greece territory, Greece is about to default, French banks are on the verge of collapsing and we're about to thrown more good money after bad. At least EU leaders still can find some time to indulge in a spot of personal recriminations. Following on from Berlusconi's insult, Sarkozy has waded in too:

"...she is on a diet and then helps herself to a second helping of cheese"

That would be the 6"4, adonis, David Beckham lookalike that is Sarkozy. (As an aside has anyone else noticed the similarity between Sarkozy and Lumiere the candlestick in Beauty and the Beast?)

I take 'great comfort' that our economic future lies in the hands of such well qualified and talented leaders. As Isambard Kingdom Brunel once said:

"I endeavour to comprehend the present extraordinary state of railway matters when everyone around seems mad. Stark staring wildly mad. The only sane course for a sane man is to get out and keep quiet."

And I intend to do that, keep quiet, well for a couple of hours at least. Didier Reynders, the Belgian finance minister's left the EU gathering on Sunday early to see the new Tintin film and I'm about to do the same this morning - the film opens today at my local cinema. I'll stick a review up later, that is if, while I watch a Belgian save the world, the Euro doesn't collapse in the meantime.

Things Are Really Bad

Contrary to my previous post, it seems, unexpectedly, that the EU is not even going to try to fudge Sunday's meeting - they instead have postponed any announcement until a second meeting next Wednesday. Blimey that means the crisis must be very serious!

Bruno Waterfield from the Telegraph tweets:

I feel for them I really do.

Meanwhile In The Real World...

As the Tories continue to faff about on a meaningless referendum debate due to be held on Monday, the Euro crisis continues unabated. All eyes are on Sunday's meeting as the EU tries to thrash out a deal to save the Euro. The markets expect something big, but it's clear that intractable problems exist between France and Germany:

The talks are deadlocked, reflecting a deep rift between Euroland's two great powers. The French fear the EU's €440bn EFSF rescue fund will not be enough to shore up monetary union without mobilising the might of the European Central Bank as lender of last resort. It is a view shared by UBS, Citigroup, RBS and the US Treasury.

Paris has grave doubts about Mrs Merkel's demand for larger "haircuts" – perhaps 50pc – for Greek bondholders. Such a move risks triggering default, crystallising crippling losses for French banks and courting "Lehman-style" contagion.

Mr Sarkozy's task is made harder by bail-out fatigue and mounting euroscepticism in the Bundestag.

It's hard to see any kind of concrete proposals being announced on Sunday, certainly not any that will get passed the 17 Eurozone national parliaments - it took nearly 3 months to get July's relatively proposals to get approved.

Instead, it is likely that Sunday will follow a well trodden weary pattern, a big announcement that later doesn't hold up to scrutiny on the details. Yet in the law of diminishing returns, the time between an EU 'solution' to the Euro crisis and it being picked apart gets shorter and shorter. One wonders how long Sunday's proposals will fool the markets, not long I suspect; it could fall apart as soon as Monday morning.

Yet any failure to grapple with the crisis will have grave consequences, as Sarkozy himself acknowledges:

"If there isn't a solution by Sunday, everything is going to collapse,"

It's quite possible, and with deep irony, that as Cameron and his merry band of Europlastics debate the finer points of repatriating powers back from Brussels on Monday, the whole damn thing is collapsing around their ears.

The Bleeding Obvious

I'm fully aware that I'm in danger of keep repeating myself, but the lack of any concrete proposals to resolve the Euro crisis one way or another means every day appears to be ground-hog day. Again this weekend there were reports of a €2 trillion rescue bid, a report that seemed strangely familiar from one in mid -September. Again there's disagreement between the Germans and the French on a resolution - and the Germans are back-peddling on anticipation of an agreement during next weekend's crisis meeting:

Spokesman Steffen Seibert said a "package" of measures would be agreed upon at the EU summit in Brussels this coming Sunday.

"But nevertheless, the chancellor reminds [everyone] that the dreams that are emerging again, that on Monday everything will be resolved and everything will be over will again not be fulfilled," Seibert said.

Yet the markets are acting (again) like they anticipate an agreement, despite experience to the contrary as the BBC's Robert Peston observes:

Something slightly odd is going on.

Markets are behaving as though European governments will definitely agree a rescue package for the eurozone next weekend and that the rescue package will sort all Europe's financial and economic woes.

But, by contrast, when I talk to ministers, regulators, bankers and investors they all say - which is a statement of the obvious - two things: that such a rescue cannot be taken for granted; and (perhaps more importantly) that whatever is agreed will not solve the eurozone's fundamental problem.

What's noticeable is that the tone of language used to describe the crisis is getting darker, Peston talks of possible Armageddon:

To state the bloomingly, bleedingly obvious, a domino effect of collapsing banks, triggered by their inability to borrow because of creditors' fears that the banks could not withstand sovereign defaults, would be the kind of Armageddon that would obviously be better averted.

Even the hugely Euro- sympathetic Independent talks of possible meltdown and the return of a Great Depression:

The rush to unwind would create massive doubts over the health of individual institutions, leading to a drying-up of credit. Lending would collapse, bankruptcies would soar and co-ordination among European policymakers would be nigh-on impossible to achieve. We would face financial anarchy on a scale big enough to throw Europe – and much of the rest of the world – into another Great Depression.

So we need a solution. And it's a solution that must accept collective responsibility. The north may want to blame the south but that is the wrong strategy. In the event of a euro meltdown, the northern creditors would suffer as much as anyone else. Berlin and Paris will now have to take political risks to come up with a solution. But it's better to take political risks – including a sharing of the burden between creditors and debtors – than to face monumental economic failure.

The concerns of a lack of solution is echoed by a fine piece in the Telegraph, in which Liam Halligan rightly concludes that there are only, in essence, two options:

There really are only two coherent endgames, the first being that the euroland moves rapidly towards a fiscal union, the eurocrats’ dream. The prospects of that being successful are zero. Anyone who thinks otherwise knows nothing about European history and even less about contemporary politics.

The only other durable scenario is...

...that the euro, in as orderly fashion as possible, is broken up. That, in my view, is the “something” now required, before this grotesque monetary experiment causes not just economic stagnation, or even a global financial meltdown, but fully-blown human conflict.

Both of these options for different reasons are unpalatable; the first is particularly to the Germans and the second is to the EU. So what is happening is a game of trying to 'magic' a third solution which doesn't exist. Cue another round of weak proposals, superficial announcements, market turmoil and the lack of any coherent strategy. But time is running out fast.

We're sleep walking into a chaotic collapse of a major currency - the results of which will cause social and politician outcomes that don't even bear thinking about.

The solutions are obvious, and the results of failure to implement solutions are obvious. I make no apologies for continually trying to point them out. I do not want another "fully-blown human conflict" on the European continent.

Another Day, Another Euro Crisis

Everywhere you look this morning there's bad economic news, a combination of Vicker's report this morning but more predictably the growing Eurozone problems.

Germany appears to be laying the ground for a Greek default and exit. German finance minister Philipp Rösler said Greek bankruptcy was "no longer a taboo" a view shared by Merkel. Christian Lindner, general secretary of Chancellor Angela Merkel's junior FDP coalition partner, said Greece's departure from the eurozone "could not be ruled out". Views that would have been unthinkable a couple months ago are now being openingly expressed. Germany's patience therefore appears to have run out.

The Greek bailout is also in chaos with the EU refusing further funds unless there's firm action on the deficit, including disturbingly:

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets.

The Greek chaos, and the apparent acceptance of German of a Greek default, has wrecked havoc on French Banks who are highly exposed to Greek debt. Shares in the big three - Société Générale, Credit Agricole and BNP Paribas - all suffered double-digit losses. There are also rumours that Moody's is going to downgrade French banks due to their Greek exposure

Italian, French Spanish and German bonds are at all new records while the money is going to safe havens like gold which is at new record high in Euros.

Global stock markets are down. Oh, and the Euro has plummeted.

Euro's Last Legs?

Today's momentous crisis meeting over the Euro and bailout of Greece could well be disastrous for the future of both the Euro and the EU - although if you watched BBC Breakfast this morning, you would be unaware of the possible consequences of it all going wrong today. Apparently, in a brief piece at 08:00, "EU leaders are meeting to discuss a bailout of Greece". In other words move along nothing to see here.

Despite the heavy responsibility of today's meeting, no-one in Brussels has the first idea how to respond to this crisis effectively. The obvious solution - of an orderly break-up of the currency - is a non-starter for them. So what remains are fundamental and seemingly insurmountable differences between the Germans, French and the European Central Bank over the bailout terms of Greece.

My guess is that what will result will be the classic EU fudge, a bewilderingly complex plan that pretends to fix the problem (and allows Greece to partially default but in such a way that it is not made specific) in order to buy more time. Already apparently there is a deal but no details yet are forthcoming.

Whether the markets buy it is another matter; they are clearly losing patience with the whole charade and tomorrow could be Black Friday. But the proponents of the Euro won’t go down without a fight, all the time it will try to buy more time and buy more time. Last November the FT published this article which compared the Euro crisis with the 1960s Sterling devaluation crisis:

To some who went through the unsuccessful struggle from 1961 to 1967 to stave off sterling devaluation, the series of crises surrounding the euro will be drearily familiar. First there is a surprise loss of confidence. Then there is a series of rescue operations, usually taking the form of international guarantees of one kind or another. These are backed up by domestic restrictive measures leading to a domestic recession of sorts. In time the financial pressures ease and near-normality is seen to return. But then, when few are looking, there is another crisis, another set of international rescues and another set of domestic restrictions. And so on. Eventually the struggle is abandoned, and political and financial leaders work to pick up the pieces.

During the period when sterling devaluation was known as “the great unmentionable” a tiny band of Treasury officials kept “a war book” on how to deal with the unmentionable if it nevertheless happened. Harold Wilson, the prime minister, ordered that the “war book” be physically burned, which it was of course not. It is difficult to believe that such a manual does not exist in Athens, Frankfurt and perhaps other European centres.

While Euro-federalists will fight tooth and nail to prevent a disintegration of the eurozone, the simple fact is if something is unsustainable it can not be sustained for ever - however it can still be kept going for quite a long time.

Everyone knows the Euro is seriously screwed but, I suspect after today, being screwed will have to wait just a little bit longer.

Losing The plot

From EuReferendum, the Independent reports:

[French] President Nicolas Sarkozy was yesterday accused of calling French journalists "paedophiles" in a furious off-the-record exchange at the Nato summit in Lisbon last week.

One wonders, as Sarkozy is so short, he feels threatened?

Meanwhile...

...as the media continues to salivate over the 'Miliband of brothers', another crisis has been looming quietly but surely in the Eurozone. Despite claims and reassurances that the crisis was over, the markets are telling a completely different story. They have set their sights on Ireland and Portugal; both of which have seen their 10-year bond yields surge to euro era record levels. In effect sovereign debt is, one-by-one, being 'decoupled' and sent off to join Greece on a desert island.

A Fistful Full of Euro's likens it to the Agatha Christie novel; And then there were none (I notice that he wasn't brave enough to use the original title:)

...in this sense the present European Sovereign Debt situation does rather resemble the plot of the well known Agatha Christie detective novel “And Then There Were None“. As told by M. Christie ten people, all of whom have in one way or another been previously complicit in an earlier death are somehow tricked into travelling to pass some time together on a secluded island. Even though the guests are apparently the only people on the island, they are – somehow, and one after another – systematically mysteriously murdered.

In a way which may eventually come to resemble scenes from the forthcoming meetings of the European Financial Stability Facility management board each morning for breakfast one less guest shows up. One by one and little by little, one participant after another becomes overcome by a mysterious and seemingly inexplicable bout of “systemic instability”.

AFFOE even goes onto, inadvertently, to disagree with Ed Ball's analysis that cuts have lead to the current Irish crisis (my emphasis)

In all these cases, including the Greek and Spanish ones, this issue is not simply one of stimulus versus austerity (a false polarity when it comes to the situation on the Euro periphery), the issue is how to restore growth to highly indebted economies, since without growth the debt to GDP ratios will not come down, and the burden of the debt will not be reduced. So more borrowing is not what these countries need right now (other than to aid short term liquidity), what these countries all need is more exports, and no one seems to be very clear how they are to achieve them.

In other words, the crisis stems from not having the flexibility of your own currency. He continues:

Morgan Stanley’s Chief Global Economist, Joachim Fels remains pretty unconvinced by all of this. “Strains,” he wrote in a recent report, have now reached a point where “one or several governments” may soon have to resort to the rescue mechanism. “Neither the European sovereign debt crisis nor the banking sector crisis has been resolved and both continue to mutually reinforce each other,” he said, adding that the EU’s stress tests for banks had manifestly failed to restore the necessary confidence.

None of this is a surprise, the Greek bailout was only ever a sticking plaster over fundamental cracks - a crisis postponed. A run of terrible data recently has not helped matters either: Irish GDP shrunk 1.2 per cent in the second quarter of 2010, European industrial orders figures slumped and speculation continues that Ireland may have to refinance its debt. As the Wall Street Journal today highlights regarding the bailout in May:

Over the next three days, Mr. Trichet sought a way out of his bind by pushing Europe's leaders to overcome disunity and act. His quest ran into the euro zone's biggest political flaw: There was nobody in charge...[and] four months later, the root causes of the Greek crisis remain: There is no central authority to even coordinate national tax-and-spending policies.

The endgame is clearly near, the Euro cannot continue in its current format. The only question is whether it voluntarily breaks apart - the South Med countries exit - or whether the markets call time and force it apart. Given the EU's glacier like ability to make decisions, and Merkell and Sarkozy's less than amicable working relationship I guess it will be the latter.

But that won't necessarily mean I will be dancing on the Euro's grave. I see its demise as inevitable rather than a cause for celebration. Britain, given its exposure to Eurozone debt will not be immune from the fallout, and the effect on world economic recovery is incalculable.

The single currency will also return in another form, probably I suspect based around the core economies of Germany and France. Moves to harmonise taxation, the first sensible step in currency union, in those two countries are already being prepared. The other countries with their economies broken as a result of the failed Euro experiment will be left to rot.

And nor do I believe that the crisis in the Euro will be the demise of the EU, despite Angela Merkel’s protestations. Like a shark that has to keep moving forward to survive so the EU has to keep on integrating for the same reasons. It will be badly damaged for sure, wounded, but there will be a resurrection - a different strategy - there always is.

It will be a battle won but not yet the war.

Update: Anglo Irish bank has had its credit rating downgraded this morning:

Moody’s Investors Service has today downgraded the senior debt rating of Anglo Irish Bank Corporation Limited (“Anglo Irish”) by three notches to Baa3/Prime-3 from A3/Prime-1, and is maintaining it on review for possible downgrade. At the same time, Moody’s has downgraded the dated subordinated debt held by Anglo Irish by six notches to Caa1 from Ba1 and has assigned a negative outlook…

Update II:

Irish 10-year yield spreads over German bunds are sharply wider this morning, at 0800 GMT, Irish yield spreads had widened to 4.53 percentage points, the highest since the introduction of the euro:

Unless the European Central Bank and national central banks step in "in a sizeable way" as buyers of Portuguese government bonds, OTs, and Irish bonds, Credit Agricole CIB expects these illiquid markets to slide further, "exacerbating the fear trade, boosting bunds."

The French Run the EU

So says Ireland's outgoing Commissioner Charlie McCreevy. It's not a surprise of course but it's nice to have it there in black and white.

In a speech on Friday to the Association of European Journalists in Dublin yesterday, Mr McCreevy said (my emphasis bold):

What President Sarkozy's statement tells us is that like many of his fellow countrymen, he does not see the European Commission as a commission for the advancement of European interests, he sees it as a commission for the advancement of French interests.

And:

The influence of France in Brussels is impressive, though. People forget that the Brussels bureaucracy was designed by the French almost as a copy of how the administration in Paris works.

This has over the years given the French a huge advantage in knowing how to pull the levers of power. And if you look around the commission you will see that the French have been masters in getting their key people into some of the most powerful posts.

Time and again over the decades, France's influence has been obvious, from fighting to set up the CAP which initally absorbed 90% of the Community budget for the sole benefit of French farmers, from tricking Britain into giving giving up sovereignty over its own fishing waters and from the farcical situation where the EU Parliament is based in Strasbourg as well as Brussels.

Mr McCreevy hasn't always expressed these views. This was the same man who, although admitting that he hadn't read the Lisbon Treaty, urged the Irish to vote yes in their first referendum:

Anyone who thinks that, as the reality and inevitability of EU enlargement has taken hold, that we can continue to tackle urgent problems without streamlining of the decision-making process is failing to face up to reality.

and on the second referendum:

Voting 'No' would be a gamble too far

It's a bit late now complaining about French influence within the EU.