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Germany and Greece flirt with mutual assured destruction

Ambrose Evans-Pritchard, The Daily Telegraph
First we learn from planted leaks that Germany is activating “Plan B”, telling banks and insurance companies to prepare for 50pc haircuts on Greek debt; then that Germany is “studying” options that include Greece’s return to the drachma…

If it is a pressure tactic to force Greece to submit to EU-IMF demands of yet further austerity, it may instead bring mutual assured destruction.

“Whoever thinks that Greece is an easy scapegoat, will find that this eventually turns against them, against the hard core of the eurozone,” said Greek finance minister Evangelos Venizelos.

Greece can, if provoked, pull the pin on the European banking system and inflict huge damage on Germany itself, and Greece has certainly been provoked…

Germany’s EU commissioner Günther Oettinger said Europe should send blue helmets to take control of Greek tax collection and liquidate state assets. They had better be well armed…

Yet to push Greece over the edge risks instant contagion to Portugal, which has higher levels of total debt, and an equally bad current account deficit near 9pc of GDP, and is just as unable to comply with Germany’s austerity dictates in the long run. From there the chain-reaction into EMU’s soft-core would be fast and furious…

My solution – like that of Hans-Olaf Henkel, the ex-head of Germany’s industry federation (BDI) – is to split EMU into two blocs, with France leading a Latin Union that keeps the euro. This bloc would devalue but not by 60pc, yet uphold its euro debts intact. The risk of default and banking crises would decrease, not increase…

The German bloc could launch their Thaler, recapitalizing banks to cover losses from rump euro debt. Disruptions could be contained by capital controls at first. None of this is beyond the wit of man. My bet is that aggregate losses would be lower than the status quo, and the long term outcome much healthier. The EU might even carry on, unruffled…
(11 September 2011)

Make foreign currencies legal in UK

BBC Online
Parliament is to debate a call for foreign currencies to be made legal tender in the UK.

Such a move would protect savers by allowing them to hold the currency least likely to be devalued, Tory MP Douglas Carswell told the Commons.

He said people could then “extricate themselves from the monetary masters that hold them all captive”.

But Labour’s John Mann dismissed the plan, saying Parliament should “defend the great currency sterling”.

MPs decided to give Mr Carswell’s idea – set out in a 10-minute rule bill – another hearing on 20 January, but it is unlikely to become law.

Mr Carswell, a euroscpetic Conservative who represents Clacton in Essex, said legalising other currencies would allow consumers to shop around for the best deal on goods, possibly via smartphone applications.
(6 September 2011)

RMB: steaming ahead in Africa

Pan Kwan Yuk, FT Alphaville Blog
It has been an eventful month for the renminbi.

From Lagos, Nigeria, where the central bank announced plans to diversify as much as 10 per cent of its $35bn foreign reserves into renminbi, to London, where banks are looking to transform the city into an offshore trading hub for the Chinese currency, the redback is finding a growing chorus of supporters.

While few expect it to replace the greenback anytime soon, there’s no denying that China’s drive to internationalise its currency is steaming ahead much faster than forecast.
Nigeria’s punt on the renminbi is a case in point…
(13 September 2011)

BerkShares boost the Berkshires in Massachusetts

Jane O’Brien, BBC Online
“BerkShares are our own personal local currency backed by US dollars,” explains Nancy Fitzpatrick, owner of the Red Lion Inn in Stockbridge, one of 400 businesses that accept BerkShares.

“It’s an affirmation of our local economy and an indication that I support our small local businesses, that my dollars will be spent within Berkshire County.”…

“The BerkShares are highlighting that we can survive by producing things locally. How you spend your money and where you spend your money is actually very important.”

But he admits committing to BerkShares is tough because so much is sourced overseas, including bicycles he sells which are made in China. “And the Chinese don’t accept BerkShares.”

It’s a problem experienced by other businesses in the Berkshires and demonstrates the practical limits of any local currency…

Closing such gaps in the supply chain is the next planned phase in the currency’s development.

New businesses aimed at fulfilling a community need will soon be able to apply for loans on condition that 25% of the money is issued in BerkShares…

“The current version appeals to some people, but not everybody. The novelty is starting to wear off but the loans will make them fresh again.”

Based on a model started in the state of Washington, the loans could become available within two years. And there are also plans to decouple Berkshares from their dollar pegging.
(7 September 2011)