It's based on an 'all for one and one for all' principle that should anything go wrong with the Euro there will be a fund to meet any problems. The problem is that the fund is based around what is called 'callable capital' which basically means that everybody must cough up to meet their obligation. The fund total should be 700bn Euro of which only 80bn is cash - the rest is a promise.
Just like the current Euro situation not everybody has a strong enough economy to meet those possible obligations.
Those countries with Triple A ratings (France and Germany surprise, surprise) don't actually have to find any cash to meet any shortfalls in the capital of the fund, only the weaker countries do. Fr and Ger simply have to persuade their own parliaments to back any guarantee.
So you have potentially a situation where a country like Italy could need a bailout simply because it has signed up to help other countries out.
The reasons why it's not good for anybody is that a) it's not accountable b) it has no external auditors c) if any of the countries require further funding it will leave banks exposed to more risk and d) it gives hedge funds the chance to play roulette with countries economies.
Another issue is that it won't actually be fully funded until 2017 so until then it's best to keep everything crossed.
Thanks for the link Paul...and the explanation to Shy...my attempt would be about 10 words and equivalent to a violent Tourettes sufferer ;-)
Your last couple of paragraphs is what i would have concentrated on, plus the "votes" for shares and when a weaker economy hasn't coughed up the other countries get the shares... takeover territory if I were a company.
Totally above the Law, totally undetected and unaccountable.
Shy, the prinicple that all members of a club should help all other members of a club is honourable but it can't work in practice because of the disparity in terms of economic power.
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Paul, as you know, I am not an accountant and from my last post you'll realise that my grasp on economics is not as tight as perhaps it should be.
Please could explain why this treaty is as bad as people are making it out to be?
I'll try!
It's based on an 'all for one and one for all' principle that should anything go wrong with the Euro there will be a fund to meet any problems. The problem is that the fund is based around what is called 'callable capital' which basically means that everybody must cough up to meet their obligation. The fund total should be 700bn Euro of which only 80bn is cash - the rest is a promise.
Just like the current Euro situation not everybody has a strong enough economy to meet those possible obligations.
Those countries with Triple A ratings (France and Germany surprise, surprise) don't actually have to find any cash to meet any shortfalls in the capital of the fund, only the weaker countries do. Fr and Ger simply have to persuade their own parliaments to back any guarantee.
So you have potentially a situation where a country like Italy could need a bailout simply because it has signed up to help other countries out.
The reasons why it's not good for anybody is that a) it's not accountable b) it has no external auditors c) if any of the countries require further funding it will leave banks exposed to more risk and d) it gives hedge funds the chance to play roulette with countries economies.
Another issue is that it won't actually be fully funded until 2017 so until then it's best to keep everything crossed.
Thanks for the link Paul...and the explanation to Shy...my attempt would be about 10 words and equivalent to a violent Tourettes sufferer ;-)
Your last couple of paragraphs is what i would have concentrated on, plus the "votes" for shares and when a weaker economy hasn't coughed up the other countries get the shares... takeover territory if I were a company.
Totally above the Law, totally undetected and unaccountable.
should be "if IT were a company"...and should be 'unelected' but undetected sounds good too!
Also, the Lisbon treaty was CHANGED to allow this AND although it is taxpayers' money that gets paid in it ISN'T their money once it's in.
Thank you, Paul. It's kind of you to take the time to give an explanation.
Do you think the principle is wrong or is it a case of the "devil in the detail"?
Thanks Span.
Shy, the prinicple that all members of a club should help all other members of a club is honourable but it can't work in practice because of the disparity in terms of economic power.
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