unleash the power of the Euro! it’s possible and it’s easy

1) as of 01.01.2013 all Euro countries will not issue national debt on the open market anymore. They remain liable for preexisting debt.
2) The EU will aggregate the Euro countries funding needs and place them on the open market (Eurobonds). The EU will be responsible for the payment. The EU will lend the money to the EU countries.
3)  The EU will exercise a mark up. This markup will depend on predetermined rules. Mechanisms for changing the rules are included in the funding treaty. For example the EU might pay globally 2% to the market, but get a 2.6% globally from the Euro countries.
4) The markup is not constant in time, nor by country. The more a country is near or approaching a predetermined set of objectives, the smaller markup it will pay. A country “in order” will pay a very small mark up. A country getting out of control will pay an high premium. This premium is in any case smaller (and importantly, more predictable) than what this country would pay if it was alone on the market. The strength of this mechanism will ensure that the global Euro fund rate will be very low.
5) The markup is already an incentive to be “in order”, but the Economists will have to decide how to structure the mechanism so that lack of discipline (vs. cyclical downturns) will be automatically punished. It’s essential to set the mechanism out of day to day politics. The one hundred best Economists will be put in an hotel and forbidden to get out until they issue a complete mechanism.
6) Seriously misbehaving countries will be expelled by the Euro by one of above mechanisms
7) National debt to EU will have higher seniority than normal debt.
8) As “old debt” moves to Eurobonds, the EU will increase the revenue. This revenue is a perfectly legitimate payment because the aggregate cost of debt will be much lower in this way (fully reaping the benefits of mutualization). To note that the cost will not fall in any way on “rigorous” countries, and the cost to “weak” countries will be far lower than individually. Arguably the cost of debt will be lower for Germany as well.
9) The growing money flow to the EU (the markup) will fund EU policies, making the EU progressively more powerful (real power resides with the money). It is likely that the money will be invested more in weak Euro countries rather than strong, but without creating a “transfer union” (i.e. from the strong to the weak), but rather a transfer from the “benefits of Union” to the weak. One (predetermined) part of the flow will be put into an Euro sovereign fund, further strengthening the position of the Euro.
10)  Countries out of the Euro will be forbidden to receive funds coming from this mechanism.
11) Greece debt will be reset in a unique and unrepeatable act of kindness.
12) The ECB will receive authority to become lender of last resort. Thus finally making the Euro a sovereign currency.

Given the immense benefits of mutualization, why the European politicians don’t do it?
Shortsightedness? Don’t want to transfer real power to the Union? Ignorance? Lack of ideas? It’s a real mystery….

 

 

 

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The way out of European crisis is… easy!

First a resume of the situation: the Euro will collapse because it is not a sovereign currency: the ECB is not a lender of last resort and weak member states pay too high interest on their debt, yet cannot devalue. The electorate will fall for populists of the left and right, is just a matter of time. Those will sink us deeper and deeper.
Germany is trapped in a superiority complex, blocking the road, and meanwhile printing Deutsche Marks.
I do not know how to make Germans understand that they are going to throw Europe and ultimately Germany into chaos. It’s extremely difficult to divert Germans from a decision, if they believe is the right one (in general, there are many reasonable Germans as well).
But perhaps, if there was a clear mechanism for solving the situation, everybody would choose cooperation vs. Nationalism.
So what’s this mechanism?:
Instead of doing some ridiculous form of Eurobonds, you move drastically to Eurobonds.
As of a cut-off date ALL countries in the Euro (yes also Germany) will not issue bonds anymore. The old bonds will continue their course, of course.
The EU will ask money on the markets for the aggregated demand of all member states. The debt that members states contract with the EU will be marked as more senior than any other. The EU will exercise a big mark up: for example if the aggregated interest it pays to the market is 3%, it will ask an aggregated 3.6% from the members. In the way this mark up is distributed among the members lays the secret of success. It will be based on predetermined rules based on how far a country (government) is from health and discipline. Countries “in order” will pay to the EU no mark up, fully reaping the benefits of cooperation. Undisciplined countries will have to pay a premium (this is a double tax, because these countries are badly governed to start with), but this premium will be far less than current market rates (which only create a self fulfilling prophecy of default). The EU will administer the money coming from markup for common policies including the convergence of poor areas with wealthy ones. Rules will be very strong and ideally protected from political decisions, with really painful measures for those countries that would try to “game the system”, including the possibility of expulsion from the Euro. If a country exits the EU will also have to leave the Euro. If a country reneges freedom (Hungary is getting there) must be expelled.

This plan would also immediately lower the risk on “old debt” because each country will have its burden progressively decreased.

Working Together European countries can stop this self reinforcing “paper” madness.

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European leaders… wake up!?

European leaders? Are there any? Or each of them looks only at his/her national electorate?
A make or break moment is approaching where the choice has to be made between more integration among the nations of Europe or a big step back towards nationalism, the cause of so much misery.
What is to be done is clear: turn the Euro in a real sovereign currency, which means capable of being a lender of last resort, plus creating mechanisms for lowering the cost of debt for Euro countries. Weak countries like Italy or Spain cannot stay for long in a currency that cannot be devaluated and at the same time pay high interest rates. An unstoppable spiral will soon take hold. People will hoard cash in Euro and move money out of weak countries, actually triggering the disaster they fear. Individually rational behavior, collective madness. More fiscal integration and discipline is needed, which means that more budget must shift from nations to the Union. This can be done in many ways. It cannot be asked to healthy countries to simply foot the bill! This take courage from national politicians, give and take, negotiations, compromise. The center must get more power from the nations. The problem is that national politicians have been using for too long the european union as the bau-bau: we are good, but we must do this and that because of the EU. In Germany: we are the orderly savers paying for the sun drenched lazy southerners. In Italy: pay pay pay for something that comes from outside. Stop populism, before you cannot control it anymore. Explain the bare truth. Work for the European common good because it will be much better for everyone. Nationalism brings war. The EU was created to avoid war, but we have started to forget how horrible that is, and we now play with fire. We must move towards more United States of Europe, but this requires politicians to give away power…and this requires true leadership.

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subprime nations

There is a parallel between the subprime loans crisis and the western nations’ public debt crisis. First a huge dose of “who cares: someone else will pay for my mistakes” approach. Second ignorance and lack of clarity of how many peripheral, individually insignificant decision impact the system. Third, lack of leadership, which manifested itself in two very different ways. I park for brevity the story about the subprime crisis. In the public debt crisis the leaders of subprime nations mismanaged and ransacked the public finances for decades to ultimately please the electorate (and get reelected). Leaders who drove a bit more restraint did not get elected (in Italy the left). The more the electorate is immature the more the restraint will be enforced by fear and force, just before the patient goes down. Unfortunately the price to pay in this way is much higher. Instead of a bit of initially annoying preventive medicine mismanaged nations now get chemotherapy. I am afraid that given an immature electorate and political class this is the unavoidable result. The problem is the ignorance of the electorate. Even if a politician would say and do the right things, it would be easily beaten by demagogues and populists. The perfect example is Berlusconi in Italy. Another bad example is unfortunately the USA, and this is bad news for the whole world. A fairly good example is Germany. Ten percent of a competent electorate is not enough in a democracy. To educate a nation could take 25 years… Going away from democracy is a cure far worse than the solution. Democracy is an insurance against the worse excesses, but is not a guarantee for good management, actually it seems to be a guarantee for mediocrity. What is necessary is a political innovation, a paradigm shift to set free the infinite creativity and energy of the people.

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Ma c’e’ la crisi? Sfortunatamente no!

Sono decenni che si sente la parola crisi. Un mantra: invece di “ommm”, noi abbiamo “crisi”. Magari ce l’avessimo. La crisi e’ un evento drammatico, eccezionale, limitato nel tempo. La situazione in Italia in particolare e nell’occidente in generale non ha tali caratteristiche. Non sembra terminare mai, anzi peggiora, con brevi intervalli e’ diventata la normalita’ ed in fondo non e’ nemmeno drammatica. Drammatici sono gli Tsunami, le centrali nucleari che esplodono come petardi. La parola corretta, ma spaventosa che dobbiamo cominciare ad usare e’ declino. E dobbiamo usarla perche’ il primo passo per risolvere un problema e’ riconoscerlo, accettarne l’esistenza, comprenderlo, studiarlo. Poi si puo’ decidere di convivere con il problema (un declino progressivo piu’ o meno dolce) oppure si puo’ decidere di fotterlo, ups scusate, risolverlo, addirittura di rivoltarlo come un calzino. Noi siamo ancora alla fase della negazione. In pratica, specialmente in Italia la strategia di fatto e’ quella della accettazione del declino, cercando con qualche espediente che non diventi disastroso. Nel resto dell’occidente la situazione e’ simile, spesso migliore, ma il problema di fondo e’ lo stesso. I paesi occidentali dopo una fase di straordinario sviluppo sono entrati in una fase di relativo declino. Capire…quindi… perche’??
E pero’! Mica posso scrivere tutto oggi?

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nuclear dilemma? what is really rational about nuclear energy?

You can hear all kinds of opinions about what to do with nuclear energy and also about what is rational or not. Many such opinions are driven by ideology and not by facts. After the Fukushima disaster, I followed some tv debates and I witnessed how in many occasions the defenders of nuclear energy accuse the opponents of irrationality, of exploiting the fears of people after a nerve wrecking event to sway the public opinion. The argument goes that we should rationally evaluate the case without being too much influenced by the heat of the moment. I agree with that fully. BUT…
We need to recognize the facts rationally including and foremost that we are dealing with humans! We do have fears, maybe irrational and they do influence the world. Ignoring those real fears is not rational, it is just stupid. Take fear of radiation into account and the damage of nuclear energy becomes much bigger. Few things terrify us like radiation. And for good and rational reasons. Radiation exposure is so bad that it easily makes it into the top ten of horrible things of all time. Contrary to tsunamis, black plagues and giant meteorites is entirely man made. People are so scared of it that will avoid japanese fish (no let’s make it asian) because it might be contaminated. Less people will vacation in Japan. Rational? Maybe not. Real? For sure. Additionally this level of widespread fears are known to leave individual and social psychological scars. How do you value hundreds of millions of people scared, worried, anxious? So the first point is that the nuclear fear effect must be taken into account into the cons of nuclear energy.
So, first, nuclear is so bloody scary, and for proven reasons named Chernobyl and Fukushima.
Secondly, there is to take into account the precautionary principle that is used in industrial safety analysis (I am a chemical engineer and I am quite familiar with the process). Risk assessment looks at the size of the danger and the chances of danger. For example a big tank of 10000tons of gasoline is much worse than 60liters tank in your car. The good thing about nuclear energy is that it is a phenomenally concentrated and compact source of power, therefore efficiently harvested exploiting the economy of scale effect (i.e. very big power plants). For example to produce the same energy with solar panels you need to occupy a land surface orders of magnitude bigger **check figure, but is really big**. But that very useful concentration of power is also the unavoidable source of major risk. The nuclear fuel in current reactors wants to react in its normal state. It must be actively stopped to do so. Therefore nuclear fuel is “fail unsafe”. All the talks about fail safe systems are bogus unless the fuel, when all goes wrong it stops the fission. The tsunami proved how the backup generators systems of Fukushima were taken down. The magnitude of damage in case of nuclear incident is enormously big, stuff that goes in history books, like the plague, the Huns. So, second, the magnitude of disaster is so big (also because of point 1) that chances should not be taken, however small.
Third, are chances so small? In a few years we had two major disasters in two modern countries that were not at war and there was not an intentional sabotage, that is when things were going well. Given that nuclear installations and waste last very long, and that the track record of humankind over a few hundred is at least worrisome (all out wars, mindless terrorism, fanatical revolutions, breakdowns of civilizations) it is clear that chances of trouble are not so small.
Fourth, will energy end? Never, the planet is awash with it. What can end is dirt cheap energy. If the economy progresses well, we can devolve more and more resources to energy. harvesting and conservation.
There is a problem though, and is of course of economic reasons. Nuclear produces around 15% (+++check figure+++) of electricity, particularly in OECD countries. If all nuclear plants would stop tomorrow, there would be major pressures on the cost of other energy sources, which are already under pressure due to rising demand and the decline of cheap energy. (Thankfully millions and millions are getting out of poverty). Again it’s not a problem of lack of energy sources, but rather of the economic means to get it. Alternatives to nuclear also produce more CO2. Some countries, above all France, are heavily dependant on nuclear.

Therefore the solution is clear:
1) immediate global moratorium for all new plants. No more plants will be built until a very major improvement in safety is demonstrated, probably never.
2) gradual, slow (25years?) and planned shutdown of all plants, starting from the less safe. It is essential that the mechanism is clear and definitive and -again- slow, in this way the market can adapt well. The mechanism should be driven by the UN, and a compensation scheme should be put in place for the countries that need to convert. Clearly, it cannot be argued that such a problem is pertinent to the national decision, as nuclear clouds travel very far and increased CO2 emissions and pressure on energy supply is also a global problem.
If we stop all nuclear plants, we also get some help towards reducing the risk of nuclear weapons… Two birds with one stone. Here we touch a sore point…the strategic relevance of nuclear plants, see the row with Iran. But this just reinforces the point that nuclear energy growth must be stopped now and then slowly stopped for good.

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gritty determination

Synonyms of gritty: resolute, unyielding, spirited. Determination is already tough, but being grittily determined is just another level! I paused to reflect about these two words while reading page 47 of a book about the development of Christian doctrine. The author explains how ancient Rome came to absorb the culturally superior Greek world (and most of the rest) and places a lot of emphasis on the Romans’ willingness to share their citizenship in exchange for an increased supply of fighting manpower. “The Greek cities had never proved able to share the citizenship so easily, one reason why none had created a sustainable empire”. Then comes the important passage: “The Roman armies were also imbued with a gritty determination honed in the tough wars of the fourth and third centuries against the Samnites, the most formidable of the mountain people”. Note the “also”: determination is needed for a superior goal, or at least in combination with something else, just in itself is useless.

Determination is an useful trait in people as well as bigger organisms like cities or nations, but there is a difference between the normal sort and the gritty type. The normal version is the “good days” determination. When you are rich, well fed, supported, confident, educated, healthy, popular and any combination thereof. I do not mean to debase in any way this trait. Lucky entities can get even better aided by the “good days” sort. But it is in the darkest hours, in the hopeless moments, when is not even clear anymore why one fights on, then emerges the gritty determination. That’s the one that saves from extinction. I don’t think one organism can teach itself to be like that, but can learn through experience. I can’t just wake up tomorrow and think “I am going to be very determined, whatever happens, bla…bla…”, something very hard would shatter my good intentions. But if I have built some determination in past events, or observed it, I might stand a chance.

In fact the old Romans, even if Hannibal repeatedly humiliated them in battle, somehow managed  to hang on and ultimately wore him down.

Even if we are no Romans and there are no invading elephants, we can still use a bit of determination to overcome our everyday challenges.

Pubblicato in philosophy, Uncategorized | 1 commento