Notes From Underground: Mark Carney Lives Up to His Name (A Master of the Strange and Inane)

Did he really say that about currencies and sovereignty? In an article in tomorrow’s Financial Times it is reported that Mark Carney said during a Q&A that a “… currency union between England and an independent Scotland would be ‘ incompatible with sovereignty.'” Carney said a currency union needed three elements for success. “These were the free movement of goods and services across different parts of the currency, a banking union underpinned by common institutions such as a central bank, and elements of shared fiscal arrangements.” Fanning the flames of criticism against the euro and Brussels, Carney added: “You only have to look across the continent to look at what happens if you don’t have those components in place. A currency union is incompatible with sovereignty.”

Governor Carney was trying to make the case for Scotland voting NO for independence but his words about the EU are going to reverberate in Brussels. Last week, ECB President Mario Draghi was pushing for the nations of the EU to surrender more sovereignty to the central authorities in Brussels and the push back from Berlin and Paris was immediate. Why would Carney want to enter into the swamp of the Eurocrats by calling the question on the entire EU project? Sometimes the carny oversells the freak show.

It may well be that the British authorities have awoken to the real possibility of a YES vote by Scotland and are now on the stump pushing for a NO vote with no restraints. A YES vote will result in many UNKNOWN UNKNOWNS when it comes to global finance and politics. The possible outcomes from a Scottish YES vote is vast in permutations and will have to be thought through with caution. Don’t fall prey to those talking heads trying to simplify the results.

In a Bloomberg piece today–“Draghi Plea For ABS Support Rebuffed by France, Germany”–it was reported that Mario Draghi had asked the French and German governments to guarantee some of the asset-backed securities that the ECB is looking to create. In a paper to be presented to ECOFIN this week the French and Germans wrote: “Some actors have called for a public intervention to facilitate the development of the securitization market, notably to improve the economics of securitization. An intervention in the form of a public guarantee would be problematic.” Again, the Draghi plan sells well on television when headlines move markets but as usual the details of any ABS plan is very complicated.

The problem with creating ABS is made even more difficult when the greatest obstacle to ABS is Bundesbank President Jens Weidmann. Mario Draghi may believe that the Bundesbank surrendered its sovereignty to the ECB but it certainly didn’t lose its power of moral suasion. In the EU nothing is ever easy nor certain. Bank Of England’s Carney doesn’t need to call into question the entire ECB plan  for there are enough detractors on the continent.

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3 Responses to “Notes From Underground: Mark Carney Lives Up to His Name (A Master of the Strange and Inane)”

  1. Chicken Says:

    Can’t imagine Scotland wouldn’t want independence. Of course if they decide no it must include forfeiture of sovereignty and not some unworkable hybrid.

    I don’t see why it should be a big deal really except England loses another colony so they’re not likely to want that (loss of tea taxes).

  2. mikegre2014 Says:

    “The possible outcomes from a Scottish YES vote is vast in permutations and will have to be thought through with caution.”

    Well, if you trade currencies, you will have to think through the ramifications before the vote. Caution yes. Faintheartedness no.

    It looks like a “No” vote is already priced in which means, I guess (hope) the only way the pound can go is up.

    And people who have recently returned from Scotland, when asked about Scotland leaving, laugh and say no, they won’t.

    Just my two cents…or two shillings.

  3. yra Says:

    Mikegre—I agree with you on the face of it —but every poll that shows the Yes in ascendance will push the CABLE a bit lower—as we get closer to the 18th the polls will be too close to call within the margin of error then a roll of the dice with the bigger pay out to the upside of CABLE because of the recent large sell off–but the markets are skiddish with people buying late priced insurance driving the Pound lower

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