Whatever it takes!

In spite of 20 saving-the-Euro EU summits held these last three years ( since the Greek problem surfaced) the Euro monetary system is still very much in danger of blowing itself out of existence.

Basically to put it in simple language it is unsustainable that countries like Germany at the virtuous extreme and Greece at the vicious extreme, with fifteen other nations in between sharing the same currency but moving at very different economic speeds, can keep within a monetary union that denies the exchange rate adjustment to render competitive those who have lost it, and to render less competitive those who have become super-competitive.

Last Thursday with the Euro edging too closely towards the abyss ( best reflected by the high rates that Spain and Italy are being forced to pay for their borrowing whilst Germany can borrow at zero real cost) ECB President Mario Draghi has declared in plain and simple language that the ECB will do whatever it takes to save the Euro.

Mr Draghi assertive pronouncement was temporarily discredited by its main constituent member the German Central Bank who expressed itself against any monetary initiatives to help Spain and Italy arguing that this would take away the political pressure for these countries to reform their economies.

However before the day was out a joint statement by the German Chancellor Merkel and the French President Hollande basically backed Draghi and said they also are prepared to do politically whatever it takes to save the Euro.   Again over the weekend Mrs Merkel made a similar joint statement this time in tandem with the Italian Premier Monti.

Something has changed and the mood on the markets has turned distinctly positive since Draghi's statement.    What appears to have changed is that Mrs Merkel appears to have decided to overrule the German Central Bank's objections and sent a signal to the ECB governing council that they can proceed with extraordinary measures to bring down the rate of borrowing for Spain and Italy.

This is a welcome political initiative.   There is no way in the world that Spain and Italy can continue with their economic reform programme if the savings from their austerity measures are lost in paying higher interest on debt servicing.   Democracy will not tolerate several rounds of austerity measures without delivery of results showing there is light at the end of the tunnel, and serial rounds of austerity which lead to depression rather than growth will inevitably lead to the democratic election of extreme forces of the right or left with little or no respect for the democratic rule of law.  It happened in Germany in 1933 and there is no reason to think that a different result will be obtained this time if the same methodology is adopted.

But it is necessary to define what the various actor ought to mean when they say ' whatever it takes'.

For the ECB whatever it takes ought to mean using whatever unorthodox monetary measures are necessary to stabilise the markets through large scale monetisation.   Unfortunately this is a taboo for most inflation sensitive central bankers in general and the Deutsche Bundesbank in particular given the hyperinflation Germany went through in the first half of the 20th century.   But now the problem is not inflation.  Now the problem is prolonged recession risking a depression and a large dose of monetisation is needed to keep prices stable from downside risks.   If such measures are successful and instead of having 2% inflation we would have say 4% inflation it will not be the end of the world either.   The world has handled successfully much higher inflation in the past and a somewhat higher dose of inflation will work wonders to ease the burden of debt that had to be created following the financial crisis of 2008.

But whatever extraordinary measures the ECB can take, from direct bond buying of Italian and Spanish bonds, to lending to the European Monetary Stability Fund to do so following it being licensed as a bank, from easy long term loans to banks to enable them to buy their governments' securities to further reduction of across the board interest rates, none of these measures could be considered as a permanent solution to the Euro crisis.   At best these measures if successful would gain precious time for the politicians to do their part of the 'whatever it takes'.

And frankly this political 'whatever it takes' is fraught with all the problems of having 17 or 27 countries agreeing on a common course of action.   What is the ideal 'political whatever it takes'?

That will be in my next contribution later on this week.

Protecting human rights and dignity

This article was published in The Malta Independent on Sunday 29^th July 2012

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My last contribution in this series asked who will be protecting the ordinary taxpayer in the negotiations going on between government and representatives of the ex-National Bank of Malta (NBM) shareholders who are demanding compensation for what, in their view, was abusive dispossession without compensation of their holdings leading to nationalisation of the business and the setting up of Bank of Valletta.

I expressed disagreement with any out of court settlement on the eve of elections which smells like one for the road favouring friends at the expense of the general taxpayers.

Unsurprisingly this brought vitriolic reaction by the representative of the ex-NBM shareholder who seem already counting their fortune as they attempt  to exploit a vote sensitive government without a majority in parliament that will be forced to seek a new mandate sooner than it had planned and wished.

Jeremy Cassar Torregiani (JCT) insists that anyone who disagrees with his view of the world must be both a liar and short of integrity.   He asks who will be protecting their ( ex-NBM shareholders) human rights and dignity.

In any democracy it is the third branch, the courts, that has the function to protect citizens from abuse by the executive and legislative branches.  So the answer to JCT’s question is simple.  The courts will protect your human rights and dignity.  The same courts that the ex-NBM shareholders are attempting to short circuit, using pressure on government to settle out of court without as yet having given any proof that there is a real case for compensation.   And I must stress the onus of proof lies on who is making the claim for compensation.

JCT called me a liar because I am attempting to plant division between ex-NBM shareholders and the general corps of taxpayers arguing that as the former are also taxpayers they are one and the same thing.   This is like saying that because some Maltese are six feet tall than all Maltese are six feet tall.  It is like saying that anybody who chips in the usual fifty cents in the offering tray at Sunday mass has  right to loot the full tally collected because he has contributed to it.

I do not mean to repeat myself but I must re-iterate that the only instances where compensation could be considered as fairly due are:

·         Either that the run on the bank was instigated by government with malicious intent.

·         Or that the Central Bank failed its duty in refusing to provide lender of last resort facilities

Nothing said by JCT and Anthony R Curmi (ARC -  more  later) goes anywhere near offering any convincing proof in respect of either hypothesis.

There is one point raised by JCT which further proves how dangerous it would be to have this matter settled in any way except through proper Court proceedings.  Whereas so far JCT had said that the then Governor of the Central Bank of Malta had given the NBM Vice –President a verbal warning to ‘put your house in order as it will happen’ in his  latest JCT adds a bit more.  He now claims that the then Central Bank Governor added “that he knew for a fact Mintoff had his eyes on the bank and to prepare for the attack as best he could”.

Only the Court can decide the veracity of these claims by receiving dispositions under oath from the then Governor of the Central Bank to see exactly what he said and to whom.  What JCT is saying is a detto del detto del detto  three stages removed  from the supposed originator.    But it seems illogical to have such warning said in the same breath as another warning to ‘put your house in order’.   To put a house in order it must be out of order and the Central Bank was well in the know as to whether the NBM’s house was in order or not.   Excluding the ex-NBM shareholders there seems to be general agreement that the NBM house was not in order and this is corroborated by the then Governor of the Central and by ARC ( and many others who were involved in the establishment of Bank of Valletta on professional basis ) who also wrote in reply, but this time using laudable language in my regard ( for which I thank him).

But when all is said and done, even ARC’s contribution does nothing to proof either hypothesis which could make a case for compensation.  Statements  like ‘ it was common knowledge that, in certain quarters, the word was going round urging NBM depositors to withdraw their funds’ is too vague to be any proof that government was behind these ‘certain quarters’.   The fact that Mintoff had appeared on TV appealing for depositors to calm down,  if anything proves that the run on NBM had begun before Mintoff made such TV appearance and that Mintoff tried to calm the situation rather than to manufacture the run as he is now being accused.   That he did not succeed cannot be taken against him.

ARC’s argument that the taxpayers through an out of Court settlement would be in the same position as after the Court decides in favour of the plaintiffs is inverse logic.   There is no assurance that the Court would decide for the plaintiff and even if the Court were to so decide then at least taxpayers would know that they are paying for what is properly due.  Damages paid to Mintoff regarding Delimara were in fact paid after a proper court decision and not through some amicable back scratching agreement.

ARC also takes it against me because I said that an out of court settlement would be unjust to ex-shareholders.   ARC mistakenly understood that I was referring to shareholders of Bank of Valletta.   I was in fact referring the ex-shareholders of the NBM who repeatedly stated that they are in this mostly for the honour rather than for the money.  An out of court settlement however cannot fix the honour.  That can only come from an independent court decision.   An out of court settlement can only fix the money and will leave both ex-shareholders and the general taxpayers with a bitter taste of justice undone.   But possibly the ex-NBM do not mean what they say and in fact they are in this for the money much more than for the honour.

But what I find particularly objectionable is the argument that because government has had good return on its investment in Bank of Valletta the taxpayer should not object to an out of court settlement to appease the ex-NBM shareholders.   By the same argument  we  would be entitled to make a claim for part of the losses of our shipyards from the H.M. Admiralty, Bailey and Swan Hunter.  Some hope!

Unfortunately they seem not to appreciate what is the role of shareholders in a business venture.  What JCT and ARC are proposing is socialisation of losses and privatisation of profits.  They are sanctifying moral hazard.

And strange that government on one hand seems inclined to usurp the role of our courts to straighten  purported injustices ostensibly committed forty years ago, on the other hand commits new injustices like the case of expropriation of land at Marsa with compensation based on its agricultural value to have such land dressed up with a MEPA permit within a week and instead of using it for public purposes which underlies such expropriation, issues it for commercial development by the private sector.   Rather than address purported injustices which are being examined by the courts, government efforts would be better employed avoiding new injustices.

My visit to the NYSE

So that you know why I have not been updating regularly

Who will be protecting the taxpayer?

This article was published in The Malta Independent on Sunday 15th July 2012

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So the Prime Minister and the Minister of Finance will be meeting representatives of the Ex- National Bank of Malta shareholders to see whether there is scope for reaching an out of court settlement.

Taxpayers should be naturally wary of such dealings in sensitive pre-election mode when government is extremely vulnerable to sectorial pressure.   Government should remember that its duty is to defend the general public and not to seek expensive undeserved settlements with niche sectors.  National interest must come before any narrow partisan interest.

There should be no contestation on these basic points of the whole saga.

1.        A depositors run on the bank was in full force and without external intervention the Bank would have collapsed in a matters of days putting at risk not only the shareholders’ investments but also the depositors’ funds.

2.       In such context the value of the shareholders’ investment in the Bank was zilch as no future cash flow streams could be expected from a bank in such a situation.  Asset values  in a forced sale would have wiped away all reported shareholders’ equity.

3.       No one has yet provided any proof of how the rumours that sparked off the depositors run on the Bank started.

4.       The National Bank of Malta was not professionally run, with very poor credit assessment processes, unqualified staff, no proper organisational structure, no operations manual and generally considered as a one-man show where credit decisions were taken on basis of personal connections rather than professional assessment of risk.

5.       The Central Bank internal audit team had completed an inspection and the findings were unsatisfactory to such an extent that the Governor had verbally warned the Chairman of Bank to ‘put your house in order or it will happen’.

The only logical and fair way that any compensation may be considered is if either of these two hypothesis can be proved beyond reasonable doubt:

·         Either that the run on the bank was instigated by government with malicious intent.

·         Or that the Central Bank failed its duty in refusing to provide lender of last resort facilities

The case has been outstanding in front of the Court for an extraordinary long time even if measured by the normal slow rotation of the wheels of justice.   Presumably the Courts are still sifting through the evidence to see if there is enough raw material to justify either of these suppositions.   So the delay in the end is working in favour of the ex-shareholders as they have the onus of proof and it is much quicker for the courts to say there is no proof rather than to say there is enough circumstantial evidence to collectively constitute a proof for either of the above hypothesis.

In agreeing to meet  government is succumbing to pressure from ex-shareholders to discuss an out of court settlement rather than allow the courts to proceed with their work.    If  PN strategists think that such out of court settlement could win them net votes they  are grossly miscalculating.  No other measure would  win Labour more votes than a generous out of court settlement with the ex-NBM shareholders which will be perceived as a free ride for the few at the expense of the many.   The unmistakeable impression is that this seems a last-drink-for-the-road arrangement  between close friends.

To ensure decisions with eyes wide open I list both sides of the arguments.

Arguments for compensation	Arguments against compensation
The Bank was profitable before the depositors run on the Bank began	So what? Even Northern Rock was profitable before the depositors’ run on the Bank began in 2008.
The Bank had a strong Balance Sheet before the depositors run on the Bank began and had liquidity buffers above the legal minimum ratios	When the bank lost the confidence of its depositors it lost its most important asset. Even the Titanic was strong and valuable as it left the port of Southampton on its maiden journey. After it hit the iceberg it was more than worthless. It was a liability. Loss of depositors’ confidence was the National Bank’s iceberg
The run on the bank was engineered with malicious intentions	Where is the evidence? Government only threatened to withdraw public sector deposits only after the run on the bank was in full force and public view.
The Central Bank had a duty to restore liquidity to the National Bank under its obligations to act as a lender of last resort.	Only if the Central Bank made a technical judgement that the problems at the National Bank were problems of illiquidity not of insolvency. The denial of lender of last resort support shows that the Central Bank made a judgement that the problem at the National Bank was insolvency. Insolvency requires additional capital not temporary liquidity. Nobody has provided any evidence that in so deciding the Central Bank had any ulterior motive other than the execution of their role as provided in the law.
The Mintoff government took over the role of the Central Bank and forced the National Bank shareholders to sign over their investments for no consideration under unfair duress	The moment the Central Bank decided not to offer lender of last resort support, judging the National Bank as insolvent not just illiquid, government had to move in to provide the additional capital that the shareholders were unwilling or unable to provide. Government had a duty to ensure that the taxpayer gets fair reward for the risks they were being forced to take and not to pay any compensation for an asset which at that point was for all intents and practical purposes, worthless.
To justify not paying anything to National Bank shareholders Mintoff government eventually presented audited accounts which increased the provision for bad debts to a level which wiped away all equity cushion.	The accounts were audited by a reputable firm of auditors and the provisions took into consideration a more conservative and realistic view of the value of the security held against non-performing loans. Prudent banks value such security on the basis of forced sale whereas the National Bank, in evidence of it unprofessional management, had continued to  value  secuirty at optimistic market values.
Subsequent events proved that most of the debts provided for were recovered and Bank of Valletta took back into profits losses incurred by the National Bank to engineer its takeover without compensation	In the years subsequent to 1973 the sharp increase in oil prices delivered several years of high inflation. Inflation work wonders to ease the burden of debt and to improve the value of security. But these subsequent events could not have been known at the time of the crisis in 1973 and the decisions made in 1973 have to be judged by the circumstances prevailing at the time.
But still the National Bank shareholders deserve fair compensation for the property taken off them through threats and duress.	Only if there is concrete proof that the value of the assets they surrendered was anything higher than zero based on the facts and circumstances as prevailing at the time. As to threats and duress these are a sideshow to the core issue that the National Bank was considered insolvent by the Central Bank and failure by government to put in fresh capital would have brought losses on the depositors as had happened two years earlier in case of BICAL. It would have created an undesirable Barclays monopoly. That Mintoff was always rough at the edges is a well-known fact. But reality is that he did not need to threaten as he could have achieved the takeover through legislative means, and in fact the eventual legislation was achieved with support of both sides of the House.
Once depositors were made whole and suffered no losses, shareholders should have been made whole too as some of them were also depositors	There is a very different legal position between the rights of depositors and the rights of shareholders. Shareholders have to lose everything before any depositor loses a penny. Any government would go out of its way to protect depositors to maintain systemic financial stability. In the years following 1973 the concept of Depositors Protection Scheme was introduced for this purpose. It was not in force in 1973. Government however has no obligation to bail out shareholders. In the financial crisis of 2008 shareholders of banks in crisis were practically wiped out in most financial institutions requiring state support.
We have a right to challenge government for compensation through Courts	Of course you do
The court is taking too long to decide so we deserve an out of court amicable settlement	An out of court amicable settlement will be unjust to either ex shareholders or the taxpayers as it will leave a sense of justice undone. This is so especially if pressure is brought on an outgoing government in election mode seeking re-election.
We are fed up of waiting. We need compensation during our lifetime	So make pressure on government to arrange the court system. Imagine if government starts offering out of court settlements to all long outstanding court cases.

Grave moral hazard would result if ex-National Bank shareholders are given compensation out of the process of court proceedings.   Shareholders are not depositors and do not qualify for the same level of protection.   We must not create a system where profits are privatised and losses gets socialised.   If we are generous with of court settlement with ex-NBM shareholders, what shall we say to Maltacom shareholders who lost money after the privatisation or to Middle Sea shareholders who got burnt after the Italian venture mishap?

Who will defend the taxpayer?

A clubby affair
to prepare one for the road

As the Prime Minister and The Minister of Finance prepare to meet representatives of the former shareholders of the National Bank of Malta to seek an out of court settlement for the claims of compensation which have been subject to cases in court for just too long,  I asked who will defend the taxpayer at such meeting or will it be a pre-election clubby affair?

This brought vibrant reaction, especially from ex-shareholders who have a direct interest in forcing the government in this pre-election vote sensitive period to offer clubby compensation before risking that the voters send them to the other side.
Here is my last contribtuon ( in answer to comments by ex-shareholders) which summarises my position:

Unlike you I have no personal direct interest in this matter and the only interest I have is that of a tax paying citizen who expects government to spend the nation's money like a bon pater familias. I am all for fairness and justice and I have said all along that if the court finds that the run on the bank was started by government with malicious intent then I will stand by the Court's decison to award whatever compensation it deems fair to the ex NBM shareholders.


I do however object to ex NBM shareholders putting political pressure on government in this pre-election vote senitive period to award danages which are not due as no one has yet proven that the run on the bank was started by government with malicious intent. This is poltical interference for party politics ( i.e. votes) by sectorial interest to the detriment of the general taxpayer. It would also fail to provide the same robust proof of justice being made as would be sourced from a cout decision.


So rather than wasting eneregy to reach out of court settlement to favour its own, government's duty is to see why a court case is taking so long to get decided. This givernment has been in sede for 25 years - I would say enough time to get the Courts working as they should.


As to why I think no compensation should be due I have made my case over and over a again and those who want to see why, can follow this link:


http://alfred-mifsud.blogspot.com/2012_05_01_archive.html


Final points:


1. Why were loans from other banks blocked? - Once the CBM judged the NBM insolvent and not just illiquid it would have been senseless to allow other banks to provide liquidity which the Central Banks was not ready to provide. Insolvency requires fresh capital not liquidity. If insolvency is treated with liquidity all that happens is that the lending banks would become secured creditors, as banks would only lend aganst security and this would prejudice the rights of ordinary depositors. Furthermore there is no hard proof of the true availability of bank funding and Louis Galea is reported saying that Barcalys would not exclude the possibility rather than Barclays are ready to assist with temporary loans.


2,. Governor Earland's statement that it is inconceivable that the NBM closes down makes perfect sense. Closure of the business run by the NBM would have damaged the economy and the depositors so someone had to save it. The cure was fresh capital to address its insolvency. Once the shareholders of the NBM at no point offered to put up fresh share capital then it was the political duty of the government to save the bank by capitalising it under a fresh set up such as BoV. So the business of the NBM never closed down, it just changed owners when those who had owned it for 160 odd years were not prepared to save it through infusion of fresh capital.


3. Mintoff is Mintoff. At least until 1979 he was invariably correct in the substance but unnecessarily rough at the edges. After 1979, having accomplished all he worked for he also started going wrong in the substance. I am not one who defended Mintoff whatever.


4. There is irrefutable proof even from friendly sources that in its last few years of its existence NBM was very unprofessionally run. Mr Curmi refutes he used the words Banka tal-Lottu ( I never said he did as I used that as a figure of speech to denote an unprofessionally run bank) but he has added a lot of colour to my sketch that NBM was a one man show with incompetent management, very low lending standards and without even an operational manual. The ex-NBM sharholders should start considering whether the run was more likely home grown rather than maliciously inspired. Certainly if it is the case that the source of the run was home grown than they cannot expect the taxpayer to bail out the shareholders ( who were not prepared to save their 160 year old cash cow bank by putting up fresh capital when needed) after having taken the risk to bail out the depositors.




Alfred Mifsud

Should Malta press the Euro eject seat button?

This article was publised in The Malta Independent on Sunday 01.07.2012

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I write this before this weekend’s 20^th save-the-Euro meeting of Eurozone leaders in the last two years has even started.  Twentieth time lucky?

A lot of posturing has gone in the run-up for this meeting.   A supposedly growth pact with funding of EUR 130 billion, equivalent to 1% of the GDP, was agreed to support infrastructure investment, across Euro nations.   In reality these are mostly reclassification of funds already allocated but unused on other votes and involve projects with lead time that offers little hope for positive immediate impact to create the internal demand required to stem Europe’s rapid slide into a double dip recession.    It was more a face saver so that Hollande, Monti and Rajoy will have something to show to their domestic constituencies for the concessions they will have to make as they agree to cede important components of their national sovereignty to a central authority dominated by Germany.

To achieve an instant injection of growth it would be far more effective if core countries with stable fiscal conditions would loosen their purse and give tax rebates so that their consumers will generate instant demand for imports from deficit countries.    But strong core Euro countries, Germany in particular, continue to sing praises to the policies of surplus when they should be going into deficit to permit periphery deficit countries to shift into surplus.

At this 20^th summit there will be a clash of two conflicting and embedded positions.  It has taken a long time to get to this, nineteen meetings to be exact, each time hatching a patched-up band aid solution to a problem which clearly required deep surgery.   Now there is realisation that band aid won’t work anymore and something has to give.   In this 20^th meeting serious stuff is finally being addressed.

Finally there is consensus that a standalone monetary union has no future.  It requires support from a common fiscal policy, from a banking union with a common regulator and a Euro-wide deposit insurance scheme, from a central debt agency which controls the borrowing of the individual sovereign components of the Eurozone, and from some form of debt mutualisation to remove the wide differences in the borrowing costs of Euro members.    But there is no agreement about the proper sequencing of events to get from here to there.  On the contrary there is vicious conflict about such sequencing.

The Germans, always suspicious of the dolce vita attitude of Euro Med countries, want to see central control of fiscal and debt policies fully executed before they would agree to support debt mutualisation.   This clearly is a process requiring several months, probably years, as new Treaties would have to be agreed, then endorsed by at least 17 national parliaments and in some cases would require referendum approval and changes to the national constitution.   The French and the Euro Med countries maintain that debt mutualisation is required instantly as otherwise the Euro system will blow up and there will no monetary system to support through central control of fiscal and debt policies.

It has really become a chicken or egg situation.   In such situation I cannot help wondering whether Malta’s best interest would be best served by staying or leaving the Euro.   We are one of the few countries with the luxury to give practical effect to such a decision without undergoing nightmarish metamorphosis.   Our economy is largely self-financed and we do not rely on external lines of credit which could be withdrawn if we exit the Euro.   Our ‘home’ currency is not internationally traded and its external value could be managed by the authorities to reflect its level of competitiveness.

In fact we could make the Maltese Euro as our currency with a full one to one conversion to the Euro so that the change over from the Euro to the Maltese Euro would go virtually unnoticed.   We would be operating a one to one currency board with the Euro and until new currency notes could be procured the existing notes may continue to circulate just as the Pound Sterling used to freely circulate alongside the Maltese Lira in the Sterling Area days prior to 1971.

Germany and Spain do not have this luxury.    If Germany were to revert to the Deutsche Mark its value would revalue sharply against the Euro forcing instant loss of international competitiveness, loss of export orders and a quick rise in unemployment probably leading to deep recession.    If Spain were to consider such a move the Peseta would fall in value forcing Spain to default on its debt either outright or by enforcing its conversion to Peseta at artificial non-market rates.

What would we gain by so doing?   Above all else we would free ourselves from the onerous restrictions to participate in bailing out this, that or the other, involving substantial exposure to grave financial losses, if in spite all efforts, the Euro cannot be saved.    Let me test the two options, staying in or leaving the Euro, in the scenario of each of the four possible outcomes from this summit and the ones that will follow.

If the Euro stays together by limping forward as we muddle through from one band aid solution to another, this will involve more bailout commitments as unavoidably the economic uncertainty will spread the contagion and more healthy members of the Euro will be forced to join those already in the sick bay.    In such a situation there will be more commitments to finance and these would be spread on a shrinking population of the healthy members.  Ultimately unless addressed the system will collapse leading to substantial loss on the bailout exposure.    In this scenario pushing the ejector seat button now would be the far better option.

If the Euro stays together by broad based agreement to do the necessary pooling of fiscal, banking, economic and political sovereignty to achieve the necessary discipline which needs to underpin the process of debt mutualisation, we would need to decide whether this is where we want to go as through Euro membership we would be getting a totally different deal from the one we bargained for when we joined the EU in 2004 and the Euro in 2008.  The main two reasons a slim majority of Maltese voted for EU membership is because they were promised an inward positive transfer of funds and central discipline on the fiscal largesse of home grown politicians.   Instead through Euro membership we are being forced to enter into financial commitments which could translate into a sharp outward flow of our hard earned money and is forcing our politicians to incur more debts than is necessary in order to finance such external commitments.   If the two main perceived benefits of Euro membership are shifting into a liability, would the loss of sovereignty over crucial parts of our economy be justified?

If the Euro breaks up in a disorderly manner it is better if we disengage now and free ourselves of bailout financial commitment.   Given a choice even a pilot would eject from a plane nose-diving irretrievably, let alone an innocent passenger.

If the Euro breaks up in an orderly manner it would be better if we are on the outside and capable of taking an intelligent decision as to which part of the broken up Euro we would prefer to link our fortunes to.   Orderly break-up will possibly involve the creation of two distinct Euro areas with two different currencies, the Hard Euro for the strong core countries and the Soft Euro for the weak periphery countries.    This will force us to choose between joining Germany and its satellites in the hard Euro which could seriously compromise our external competitiveness, our attraction for foreign direct investments and our capacity for job creation.   If we join the soft Euro it would upset our price stability mechanism and brand ourselves as belonging to the weaklings.

If such orderly break-up were to happen when we are operating a currency board it would be possible to link our own currency not to one of the hard or soft divisions of the Euro,  but to a basket composition of both reflecting our trade flows so that we preserve both our external competitiveness as well as our internal price stability.

This is a complicated issue with long term consequences and therefore needs thorough analysis and preparation for all scenarios,  some of which could unfold with astonishing speed that would leave little time for clear thinking.

My objective is not to give a blueprint of what we should or should not do but to raise sensitivity to the risks we are incurring if we do nothing and pretend that the status quo will be eternally sustainable.  It is not and that much is pretty clear.    My suggestion is not that we should press the Euro eject button now unless the Euro plane continues flying nose down.    My suggestion is that we should not exclude this option if our bigger colleagues round the Euro table will continue to argue whether the chicken or the egg came first, rather than do what needs to be done to put more roast chicken on the table.