Knootoss to leave Eurozone

[Knootoss]

From the NRC Handelsblad, a Knootian financial daily:

OUT WITH THE EURO

THE HAGUE - Following weeks of currency speculation, see-sawing interest rate adjustments and increasing pressures on the value of bonds issued by the Knootian state, the Vologdov administration and the Knootian Central Bank announced that it would be dropping out of the eurozone. While the euro will remain a legal tender inside Knootoss for the time being, government debt will be issued in a new Knootian Currency Unit (KCU), a virtual currency. The KCU will function as a unit of account and a unit of exchange in international trade involving Knootoss. A new physical currency may be created later.

Imperfect Union
According to a statement released by the Knootian Central Bank (KCB), the NationStates euro area does not constitute an optimal currency region. An optimal currency region is a geographical region in which it maximises economic efficiency to have the entire region share a single currency. The KCB cites a lack of trade with Europe and the European Union. The absence of trade agreements has limited labour mobility within the eurozone, as well as capital mobility and price and wage flexibility.

In recent years, the 'fit' of Knootoss in the euro area became worse, as intra-regional trade in the Western Atlantic region and Knootian trade with countries such as Pacitalia took off. While Knootoss is still physically a European nation, it has been economically oriented on the Western Atlantic region, its dependencies overseas and more distant free trading regions. The widely divergent business cycles be of Knootoss and other participant countries further put pressure on the idea of staying in the eurozone.

Consequences
Given Knootoss' historic reputation for sound finances, the country will likely emerge with a strong currency, and a safe haven for speculators keen to find a true store of value. But this will likely come with a huge cost: Knootoss will probably save its banking system at the expense of destroying its export base. Quitting the NationStates Eurozone would trigger a revaluation of Knootian currency against the rest of the world. Traditionally, the Euro has traded within a bandwidth of $1.96 - $2.05 to the Universal Standard Dollar. Experts predict that a free-floating Knootian currency, if it includes Knootian Federation participants such as Ale-Yarok, should trade around $2.23 Universal Standard Dollars.

This jump would make exports more expensive and could potentially compound the trade deficit. If a new Knootian currency does appreciate by around 20%, it would be roughly equal to the amount that Knootian industry has increased its competitiveness relative to the rest of the area since joining. Knootoss' significant net foreign assets would be equally reduced in value. While the increase in currency value would increase the purchasing power of Knootian consumers and businesses abroad, the external sector is likely to suffer from a huge shock.

Scenario's
While the Knootian Currency Unit (KCU) is a plausible stop-gap measure, it will be impractical to maintain a virtual currency over an extended period of time. The government and the KCB have pledged to adopt a new currency as soon as possible. The first plausible scenario would be the introduction of a single currency for Knootoss, Ale-Yarok and the unincorporated territories of the Knootian Federation. This currency, likely to be called the Guilder, the Florint or the Rijksmark, would have the advantage of giving Knootoss full control over it's own monetary policy.

Several currency unions present themselves as alternatives. There has been talk about a currency unit between Knootoss and Pantocratoria for over a year. An "Atlantic Ducat" could potentially attract other Western Atlantic States such as the Caldan Union and Excalbia, furthering regional cooperation. An alternative would be the adoption of the Minoan currency and a concerted drive to create a NationStates wide free trade area, with the option of entering a full monetary union. As always in these cases, politics are likely to trump economics when it comes to a valuation of these alternatives. Whether Knootoss should desire to be the standard-bearer of world-wide free trade or the faithful friend of deeper regional integration is a question that will surely divide the Vologdov Administration.

[Of the Quendi]

Official Communiqué of the People and Senate of the Quendi



An Aira Ar Eleni

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To: The Knootian Central Bank
CC: Those whom it may concern
From: The Central Banking Authority of Ar-Minalêth
Subject: The decision of Knootoss to leave the Eurozone
Encryption: None

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Medama's and Mesire's,

The Central Banking Authority of Ar-Minalêth hereby wishes to convey its congratulations to the Nation and State of Knootoss for its boldness and courage. Its always a nervewrecking experience to abandon a currency, even if it no longer serves its purpose, and on behalf of the People and Senate of the Quendi I wish Knootoss all the best with its future currency regardless of what it may be.

It is however not solely the reason behind my letter to convey the best of wishes from my state. Rather the People and Senate of the Quendi wishes to affirm its confidence in the stability of the mastodont that is the Knootian economy and announce its interest to aquire many units of the future knootian currency, almost regardless of whether it will be a knootian currency or a multinational atlantic or minoan currency as the CBAA has no doubt that whatever currency Knootoss chooses it will be a both stable and powerful one that it would be in the interest of the CBAA to aquire.

This being the decreed will of the People and Senate of the Quendi.

Sincerely yours
HIH Prince Angaráto i Maia carte Alcedina
Governor of the Central Banking Authority of Ar-Minalêth
The Most Serene People's Empire of the Quendi Nation and the Greater Amanitte State

[Sartedenland]

We wish that Knootoss experiences great economic boom now that she leaves the failing eurozone. Congratulations.

[Knootoss]

From the Knootian Ministry of Foreign Affairs and Defence:

Ministry of Foreign Affairs and Defence
"Omnia mutantur nos et mutamur in illis"

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Ministry of Foreign Affairs & Defence
Plein 4
P.O. Box 40004
2500 ES THE HAGUE
http://www.minbuzadef.kn

From: Daniel Maria Geelen, Minister of Foreign Affairs and Defence, Dutch Democratic Republic of Knootoss
To: HIH Prince Angaráto i Maia carte Alcedina, Governor of the Central Banking Authority of Ar-Minalêth, The Most Serene People's Empire of the Quendi Nation and the Greater Amanitte State
CC: National Governments interested in obtaining KCU reserves
Subject: Currency acquisition
Security Classification: Restricted

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Your Imperial Highness,

Please permit me to accept your congratulations, and respond to the request you made to the Knootian Central Bank with regards to the acquisition of Knootian Currency Units. (KCU's).

Knootoss is open to the acquisition of KCU's and any eventual successor currency by foreign states, for the purpose of holding foreign currency reserves. We do ask that foreign governments consider an anti-cyclical purchasing pattern. While we are comfortable with a medium-term appreciation of the currency, we are on guard for pro-cyclical shocks that may occur when investors pile into the currency. At the same time, we cannot rule out short-term depreciations due to market uncertainties.

I would therefore request that Your Imperial Highness direct the Central Banking Authority of Ar-Minalêth to build up assets over a longer period of time, and timing purchases to rule out excessive pro-cyclical behaviour. The Knootian Central Bank will be happy to coordinate this process with the Quendi authorities.

Yours faithfully,

Daniel Geelen

This government communication has been printed on biodegradable paper. All carbon emissions associated with the creation of this government communication have been off-set with new plantings in Colombia, using the Pink Bunny Tree™ Carbon Offset Scheme, sponsored by the Pink Bunny Cola Corporation and the Global Hell Group. For more information about the Pink Bunny Tree™ Carbon Offset Scheme, consult http://www.futureproof.kn.

[Knootoss]

"Next item. In response to inquiries made by the Taraskovyan Imperial Government, the government of the Dutch Democratic Republic would like to state unequivocally that it will continue to honour all its debt bonds and monetary obligations, including those contracted with foreign parties, public and private."

As released by,

Lucas L. Maurhoffer

Press Secretary for the government of the Dutch Democratic Republic of Knootoss



OOC: Foreign reporters may follow up with questions.

[Of the Quendi]

Vendethiel i Laiquendi Erendisiel Falasumé, former repporter from the obscure sensationalist tabloid Aman Weekly, now foreign affairs correspondent for one of the most prestiguous quendi newspapers the Armenelos Chronicle didn't knew much about economy and had difficulties making her own work. The knootian state economy she knew very near nothing about and just three months ago in her old job she hadn't even needed to know that a nation by the name of Knootoss existed much less that it was considered a prominent major player and prospective export market by the centralized government and was changing its currency.

Yet here she was at a press conference in the Hague in the sprawling megalopolis of Knootcap trying to make sense of complex economic issues while hopping to write a story that would at most attract a few thousand readers, although those readers would most likely be of the sort that dominated the Quendi economy and thus also the shareholders meeting of Ar-Minalêth Media, the holding company of the Armenelos Chronicle. Reading through the notes she had received from her editor the young repporter raised her hand. "Does the knootian government currently have a time frame as for how long the Knootian Currency Unit will be in place before a new currency is adopted?" She asked.

OOC: I will write a central bank communiqué later.

[Knootoss]

Q: "Does the Knootian government currently have a time frame as for how long the Knootian Currency Unit will be in place before a new currency is adopted?"

A: "Thank you for your question. There are complex legal, political and economic factors to consider, so obviously I cannot give you an exact date. The government will consult with all relevant stakeholders, including banks, major foreign allies, economists, and the leaders of the political parties represented in parliament. Rest assured, this government has already begun it's effort to develop the path to a new a currency that will best serve the interests of the Knootian people."

Q: "Lucas, you didn't answer the Quendi reporter's question. Can you give us a date or not?"

A: "I can tell you that we'll have a new currency before the end of the year, at the latest. Most likely, I should emphasise, a lot sooner."

As released by,

Lucas L. Maurhoffer

Press Secretary for the government of the Dutch Democratic Republic of Knootoss



OOC: Foreign reporters may follow up with questions.

[Knootoss]

"In other good news, government bonds have been given a a triple A rating by Ixia & Mead. Ixia & Mead is, of course, the leading credit rating bureau in Azumethronnia. It is completely independent. Knootoss is only one of five countries to be given an AAA rating, out of a total of twenty eight. An AAA rating means that the Azuran agency believes that our debt continues to be an excellent investment. You'll find the report here."

As released by,

Lucas L. Maurhoffer

Press Secretary for the government of the Dutch Democratic Republic of Knootoss



OOC: Foreign reporters may follow up with questions.

[Of the Quendi]

Falasumé was completely flabbergasted by the most unexpected reply from the press secretary. Quick, concise and straight to the point. Those where three words that could have never been said of an elected amanitte official. Not even when delievering good news would a quendi senator ever refrain from responding to a simple question by taking the asker on a minutte long trip back through the history of the nation, and the commendable actions the senator had undertaken in the past before giving a vague and limited reply to something that wasn't even allways the question asked. That was simply the way the amanitte democracy worked, or didn't work.

Thus it was most surprising to Falasumé to receive so quick and exact a reply. Her article practically wrote itself. "Senior Knootian Official: New Currency Before Newyear" was a headline that would interest few people, but it would interest all the right people. Thus delighted by the apparent ease of her job the young repporter asked a second question. "According to the NRC Handelsblad, has speculated in the possibility of the establishment of an "Atlantic Ducat" as a shared currency between Knootoss and Pantocratoria, as well as possibly other states." The reporter said managing to make the word "Handelsblad" sound so strange that her otherwise pronounced accent when using the english language could hardly be noticed. "Does the government have any comments on such a possibility?"

[Knootoss]

Q: "According to the NRC Handelsblad, has speculated in the possibility of the establishment of an "Atlantic Ducat" as a shared currency between Knootoss and Pantocratoria, as well as possibly other states. Does the government have any comments on such a possibility?"

A: "I am obviously not going to comment on the specifics of ongoing negotiations. It is true that Pantocratorian and Knootian leaders are determined to draw up ambitious solutions, but any decisions about the policies that will be considered can only be released only after a deep examination of the issues at hand, and consultation with the Atlantic International Organisation."

As released by,

Lucas L. Maurhoffer

Press Secretary for the government of the Dutch Democratic Republic of Knootoss



OOC: Foreign reporters may follow up with questions.

[Knootoss]

From the Knootian Prime Minister to the Western Atlantic nations:

Office of the Prime Minister
"Libertate Unanimus"

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Office of the Prime Minister of Knootoss
Binnenhof 20
P.O. Box 10001
2500 BJ THE HAGUE
http://www.nationaleoverheid.kn

From: Countess Femke Vologdov of Pereslavl, Prime Minister, Dutch Democratic Republic of Knootoss
To: The governments of the Holy Empire of Excalbia, the Confederation of Sovereign States, the Fiefdom of Leagran, the Caldan Union of The Resurgent Dream, the Grand Empire of Aerion, the Republic of Amestria, the Dominion of New Leicestershire, the Abt Republic, the Federation of Southern Low Countries, the Liberated Republic of Free Virginia, the Empire of Balthorvia and the Eternal Republic of Xirnium
CC: The government of the Holy and Most August Empire of Pantocratoria
Subject: Currency Union
Security Classification: Restricted

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Your Excellency,

The governments of Pantocratoria and Knootoss are exploring the possibility of establishing a currency union between Western Atlantic nations. Such a union would include Knootoss and Pantocratoria, as well as the dependencies associated with these two Powers. Our governments believe that such a policy would greatly benefit the economies of both nations, which have supplementary exports and engage in a great deal of trade. Further, we believe that expanding such a currency union to include other Western Atlantic powers would greatly benefit the cause of peace & prosperity in the region.

I have been empowered to write on behalf of the government of the Dutch Democratic Republic of Knootoss and the government of the Holy and Most August Empire of Pantocratoria, to make inquiries about the possibility of your nation partaking in such a Western Atlantic currency union. On behalf of our two governments, I would therefore like to ask the following:

1) Would your government be interested in joining a Western Atlantic currency union, either as a founding member or after a formal currency has been established? And, if your government does not wish to adopt a new currency, is it open to the pursuit of a currency peg regime?

2) If your government is prepared to entertain the possibility of formal membership or a currency peg, are there any preferences or preconditions for the contents of a multilateral agreement that governs the issuing authority, monetary issues, etc.? Our governments would like to know the negotiating position of your government in as much detail as possible, so that we can draft the best possible framework for an agreement.

I thank you, in advance, for your answers.

Yours sincerely,

Femke Vologdov

This government communication has been printed on biodegradable paper. All carbon emissions associated with the creation of this government communication have been off-set with new plantings in Colombia, using the Pink Bunny Tree™ Carbon Offset Scheme, sponsored by the Pink Bunny Cola Corporation and the Global Hell Group. For more information about the Pink Bunny Tree™ Carbon Offset Scheme, consult http://www.futureproof.kn.

[Balthorvia]

From: His Excellency , the Balthorvian Minister of Commerce, Duke Vasily Ivanovich
To: Countess Femke Vologdov of Pereslavl, Prime Minister, Dutch Democratic Republic of Knootoss
CC: The government of the Holy and Most August Empire of Pantocratoria
Re: Currency Union
Encryption: 7 [High]


Madam Countess,

Having received your inquiries – and after significant counsel with the Prime Minister and His Majesty, the Emperor – I am prepared to offer you a preliminary response on behalf of the Balthorvian Empire. His Majesty wishes to stress that he does not mean these responses to be held as binding, but rather as tentative stances upon which to build more intensive negotiations.

Firstly:

1) Would your government be interested in joining a Western Atlantic currency union, either as a founding member or after a formal currency has been established? And, if your government does not wish to adopt a new currency, is it open to the pursuit of a currency peg regime?

His Majesty is of the opinion that a currency union, or common currency of some kind, is at its base a desirable outcome. However, he expresses his hesitation at joining an endeavor of which success cannot be guaranteed. At the moment it is his opinion that the Empire should not be a founding member of a Western Atlantic currency union, but instead wait until there is a sufficient body of evidence which suggests that a common Western Atlantic currency is successful and indefinitely stable.

2) If your government is prepared to entertain the possibility of formal membership or a currency peg, are there any preferences or preconditions for the contents of a multilateral agreement that governs the issuing authority, monetary issues, etc.? Our governments would like to know the negotiating position of your government in as much detail as possible, so that we can draft the best possible framework for an agreement.

For Balthorvia to entertain membership in a currency union, His Majesty insists that there be a stringent set of requirements enforced in the induction of new member states. In other words, potential members should be scrutinized thoroughly to ensure that they can display long-term financial solvency and that there membership would not risk the destabilization or outright destruction of the union. His Majesty further believes that the authority governing the currency should as much as possible be wholly democratic – i.e. equal distribution of shareholders/board members, or “one nation, one vote” – in order to prevent de facto monopoly by any one member.

Any further questions or clarifications should be directed to my office, and they will be addressed as quickly as possible. His Majesty hopes that in time we may be able to work out an agreement that is wholly satisfactory and beneficial to all parties.

Regards,
Vasily Ivanovich

[Pantocratoria]

Bellevue Retreat,
Votosoros, Pantocratoria

Sir Thierry del Moray, Pantocratorian chancellor, had been in the job for a year. Much of his Government's initial goodwill had been expended on a desperately unpopular war in Iesus Christi which now turned out to be fruitless. Almost unnoticed alongside headlines of casualty reports, metahuman treachery and Iesusian barbarism, significant economic restructuring and reform had begun. The Government's deficit had been mercilessly slashed, although the budget had not been returned to surplus because of the war. Funding for programs introduced by the Socialist/Constantinople Party Coalition Government had been particularly affected - much of the social welfare apparatus of the State had been rendered almost inoperative, leaving administrators behind only to monitor the performance of those responsibilities by the Church and other private charities. Results were mixed, but the war had overshadowed complaints.

Now that the war was over, Sir Thierry, a small army of United Christian Front party officials and strategists, and various other key ministers were united in a conference room overlooking a spectacular mountain vista in the heights of Votosoros, in mainland Pantocratoria. A wall made entirely of glass was all that stood between the Imperial Chancellor and a staggering drop. The hotel, the Bellevue Retreat, was isolated, exclusive, expensive, and spectacular. It seemed strange to Sir Thierry how many important meetings took place with such stunning visual distractions as the views of the mountain range, but nevertheless, there they were. This core of Government leaders and advisers were now planning the Government's post-war agenda, a plan to steer them back onto comfortable political ground - economic reform and populist social conservatism.

"...after all, la Comtesse de Pereslavl is political dead meat. She's just waiting for someone to cut her down." observed Charles-Isaac Vanmous d'Izmu, the Chairman of the United Christian Front. He was an arch-conservative former Minister in the previous UCF Government, patriarch of an old family from the days of first settlement. Sir Thierry disliked but respected him. "It's important that the Western Atlantic currency union not be seen as a purely Knootian undertaken, but especially that it not be seen as an initiative of Madame de Pereslavl, a vain attempt to guarantee herself a legacy despite numerous failures in office. The Western Atlantic cries out for stronger, more stable leadership. Leadership which you can provide, Sir Thierry."

"I agree with Charles-Isaac." concurred Frederic d'Alpuget, Minister for Finance. "Femke Vologdov de Pereslavl is tainted by the treachery of the Iesusian rebels she and her predecessor championed. Even if her coalition can survive, her leadership may not. For your part, Sir Thierry, your leadership is unchallenged, you have years left in your mandate, a clear majority government, you're a successful business leader, a man... no other head of government in the Atlantic is both so secure in their leadership and has the leadership credentials that you have. The success or failure of this currency union will be determined by the confidence our friends have in the political and economic leadership necessary to see such a reform through. The underlying strength of the Knootian economy is more than enough contribution from the Knootians, what the region needs to see is the political will and determination to realise a reform this significant."

"And our producers stand to benefit so much from guaranteeing the presently favourable rates of exchange." added Vanmous. "Our farmers are more profitable than they have been in two decades. Nothing hurts our agriculture more than uncertainty about the rate of exchange with our trading partners."

"Other than drought." d'Alpuget conceded.

"Or flooding." offered a thoughtful staffer from the back.

"Or..."

"Yes, yes, but still, Sir Thierry, Chancellor, I think you need to call Wentworth. You need to call Trinh. Excalbia and the Resurgent Dream are our closest allies." Vanmous urged.

"And biggest trading partners." added d'Alpuget.

"They should be in this from the ground floor." Vanmous nodded. "And they'll help us convince the others. It would be a huge boon to Ambara if the Abtian Republic joined a currency union. To say nothing of Xirnium or the CSS, or even Aerion. Although the politics there might be hairy."

"Very well." Sir Thierry said, nodding. He turned around to face the talking heads, convinced. "No time like the present. Get me Acting Prime Minister Trinh on the phone."

"Yes, Chancellor." nodded a staffer, who then began to furiously dial and talk into a phone.

"Do you think I know her well enough to call her Amber?" Sir Thierry asked one of his aides as the call was arranged. "She's rather cold, maybe I should..."

"Chancellor, the Caldan Acting Prime Minister." the first staffer said, holding a PeacockPhone out to the Imperial Chancellor.

[Soveriegn States]

The President
of the Confederation
of Sovereign States

My dear Countess Vologdov,

Allow me to extend my wholehearted endorsement to the project of creating a common Western Atlantic currency. I would gladly see the Confederation of Sovereign States included among the founding nations of this new currency.

Of course, before we commit to the currency union, we should like to be assured that certain provisions, which consider essential, will be in place and shall be maintained in perpetuity.

First, we believe that a common currency must be a strong currency and that this is only feasible if the new Western Atlantic Central Bank is allowed to operate independently, free of outside political influence. To achieve this independence, we would insist that the Bank operate under a Board of Governors, with each member appointed by the various member nations for a sufficiently long term so as to prevent their actions from being swayed by electoral politics in the appointing nation. Further, we believe that while the members’ terms should be renewable, they should not be subject to recall.

Second, we believe that it is essential that the Bank be committed to maintain sound fiscal policy and that this commitment be enshrined in its founding documents.

Third, owing to the special constitutional provisions governing the autonomy of the Grand Duchy of Saxmere within the Confederation, I have been advised it would be necessary to specifically permit the Grand Duchy to print and coin its own money, at a fixed one-to-one exchange rate with the new common currency and governed by the fiscal policies of the Western Atlantic Central Bank but bearing the name and symbols of the Grand Duchy. Further, should the Confederation’s member on the Board of Governors not be a Saxmearan, the Grand Duchy must be allowed to name a junior, non-voting, deputy to the Confederation’s member.

We hope that these provisions will be acceptable and that we may establish the new currency at the earliest feasible date. I am entrusting Rachel McQuinn, our Secretary of Treasury, and Dr. Payne Thomas, the Chairman of the Confederation Reserve Bank, to conduct any further negotiations related to the currency union. Once an agreement is ready to be signed, it shall be my pleasure to sign it and submit it to the House of the States for ratification.

Regards,
Tom Caine
President


Countess Femke Vologdov of Pereslavl,
Prime Minister,
Dutch Democratic Republic of Knootoss

OOC: The bit about Saxmere printing its own version of the common currency is based on the Bank of Scotland's right to print its own British Pounds, but call them Scottish Pounds.

[Knootoss]

The KNN News Cycle

Although the contents of the letters sent to Prime Minister remained confidential, strategic leaks began popping up here and there, making their way to KNN World News Reports. Pundits speculated eagerly on who might join a Western Atlantic currency:

“The Confederation is in the bag. There's no way they'd say no to Knootian pressure to join!” a television pundit thundered, dragging his pudgy finger over a gimmicky touch-screen device to put the word 'Sovereign States' into a YES column. Another screen that was being presented to the viewers, a gaudily coloured map of the Western Atlantic, showed the area of the Confederation turning from grey to green. Other green areas on this map included Knootoss, Colombia, Pantocratoria, Pantocratorian Ambara and the Southern Low Countries. Excalbia, Upper Virginia, Balthorvia and the Abt Republic were coloured in a speculative yellow, for 'maybe'. The large islands of Xirnium, Aerion and Iesus Christi were painted red. The rest of the region, including the vast territories governed by the Caldan Union and its dominions, were still left to bask in an undecided grey.

“There's no reason to count out Xirnium yet” another pundit, a big-breasted money honey, chimed in. “They haven't said no yet, and they might want to enter the currency, if only to sabotage it from the inside”

Dragging her finger over the same 20,000 euro touch screen contraption, Xirnium was moved from the "NO" to the "MAYBE" column. On the map, the territories governed by Xirnium changed colour. And so it went on...

[Abt]

The Abtian response to the Knootian letter was as vague as the Knootian letter. The Abt Republic expressed its potential interest in a hypothetical currency union, but the final decision would be based on numerous criteria. Such as the shape and form of the currency union, whether this union would include a customs union, whether this currency union would include harmonization of laws and policies and of what laws and policies, what supra-national entities would be created and what would their competences be.

All in all, Abt was interested in learning more on the initiative and would partake in talks. However, until there was anything more specific on the table than vague questions, the Republic could answer them only in a vague manner.

The Republic's Government, for example, quite clearly understood that a common currency required at least a customs union and a harmonization of certain customs regulations, harmonization of consumer protection, freedom of movement of goods and persons, freedom of movement of workers, equality between nationals and denizens of other member states of such a currency union. In principle, Abt was in favour of such a common economic space. However, the details themselves were, as usual, where the devil waited.

Of course, the diplomatic missive itself was properly diplomatic.

[Uncle Noel]

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From: Air Chief Marshal Noel Hoogaboom, Chairman of the Council of State, Fiefdom of Leagran
To: Countess Femke Vologdov of Pereslavl, Prime Minister, Dutch Democratic Republic of Knootoss
CC: The government of the Holy and Most August Empire of Pantocratoria
Subject: Currency Union
Security Classification: Restricted

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English/Deutsch

Dear Lady Pereslavl,

I thank you for your recent letter, the contents of which I have noted.

The proposal for a currency union within the Western Atlantic region is one that, as an initial proposition, readily attracts our approval and, indeed, our support as a mean of cementing pan-regional relations and allowing the free passage of goods and services that is the bedrock of contemporary prosperity.

To that end, therefore, I would respond to your Ladyship's points as follows:

1) Would your government be interested in joining a Western Atlantic currency union, either as a founding member or after a formal currency has been established? And, if your government does not wish to adopt a new currency, is it open to the pursuit of a currency peg regime?

As stated above, the Fiefdom of Leagran is happy to embark on such a endeavour and become, as you state, a "founding member", provided of course that the resultant treaty terms are in concordance with our national priorities.

2) If your government is prepared to entertain the possibility of formal membership or a currency peg, are there any preferences or preconditions for the contents of a multilateral agreement that governs the issuing authority, monetary issues, etc.? Our governments would like to know the negotiating position of your government in as much detail as possible, so that we can draft the best possible framework for an agreement.

The Council of State is of the opinion that, with the reported demise of the Treaty of Lyeithen (to which, of course, the Fiefdom is not a signatory), now would be an ideal time to develop a comprehensive framework for inter-regional relations, and one that would incorporate both the currency union upon which we correspond but also such matters as defence, education etc. Whilst we are not opposed to this currency union as a 'stand-alone' issue that can be agreed by all parties, the inclusion of Leagran in this endeavour, and the possible exclusion in other areas, might give the impression that our money is worthwhile but our opinions are not.

With regards to the framework of the said union, we have no specific requirements regarding the composition of the central banking authority, provided of course that it is accountable and appointed by the member states. We would, however, propose to your Ladyship the possible creation of a pan-regional clearing bank (PCB) that would settle the balance of transactions that give rise to trade surpluses or deficits. Under such a scheme, residual balances would be settled by member central banks, but each would have an overdraft facility at the PCB equal to the recent average of its country’s exports and imports (its “quota”). The overdraft would afford deficit countries a credit buffer against any abrupt adjustments.

Such a scheme would allow for the discipline of member nations with trade deficits.Higher overdrafts would incur an interest charge on a rising scale. A country that breached half its overdraft would be required to sell some of its gold reserves to the PCB and to prohibit capital exports, and ultimately face expulsion

This scheme would also require creditors not to hoard their trade surpluses. Credits equal to a quarter of the PCB quota would be liable to a tax of 5%, rising to 10% for credits above half the quota.

It is our opinion that such a proposal might help to alleviate the pressures within any currency union betwixt creditor and deficit nations and allow for greater financial harmony.

Further, we would also like a clearer indication as to the physical attributes of the currency itself, such what it is to be called and how it is to appear, prior to our binding assent to our adoption of the same.

Though the Fiefdom of Leagran has not been as active on the international stage for some years, I trust that by this missive you have been assured of our desire to actively participate in regional affairs and to facilitate, as you stated in your above-mentioned letter, peace and prosperity within the Western Atlantic.

I have the honour to be, with high consideration,
Madam,
Your obedient servant,

Noel Hoogaboom

[Vagabundas]

I totaly respect your position, but I would like to suggest something to you...

Devaluating a currency is a much better way to solve your trade deficit problems and I don't think that creating a virtual currency and not replacing the Euro will be the best option at all...

I suggest that you introduce a National Currency as soon as possible and if you really want to see your exports grow, why don't you devaluate your currency?

This will reduce your debt and it will make your exports bigger, but you may have some inflation problems in the long run...

Anyway, good look with your economic policy,

[Knootoss]

From the Knootian Prime Minister to the Western Atlantic nations:

Office of the Prime Minister
"Libertate Unanimus"

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Office of the Prime Minister of Knootoss
Binnenhof 20
P.O. Box 10001
2500 BJ THE HAGUE
http://www.nationaleoverheid.kn

From: Countess Femke Vologdov of Pereslavl, Prime Minister, Dutch Democratic Republic of Knootoss
To: The governments of:

• The Abt Republic,
• The Empire of Balthorvia
• The Holy Empire of Excalbia,
• The Fiefdom of Leagran,
• The States-Federation of Snefaldia
• The Federation of Southern Low Countries,
• The Confederation of Sovereign States,
• The Caldan Union of The Resurgent Dream,
• The Dominion of Upper Virginia

CC: The Holy and Most August Empire of Pantocratoria
Subject: Currency Union Proposal
Security Classification: Restricted

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Your Excellency,

Having made an inventory of the positions of the Western Atlantic nations with regards to a possible currency union, I make the following proposal:

Currency name and appearance

The government of Knootoss proposes that the new currency be called the 'Atlantic Ducat', and that minted coins feature the denomination and a common Atlantic theme on one side, while leaving the other side of the coin to be used for symbols chosen by the nation where the currency is minted. This allows all participant states to maintain a "national identity" through their own currency, whilst simultaneously showing a shared commitment. Knootoss is open to alternative proposals, provided that these can also entertain broad support amongst the participant nations.

Institutional arrangements

The government of Knootoss believes that a stringent set of requirements for potential new Member States should be negotiated as an integral part of the institutional framework, to ensure that all potential member states have long-term financial solvency, and that their membership will not pose a risk to the union. Financial solvency and financial stability should be verified by an ongoing process of independent scrutiny, both prior to and after joining. A mechanism should be negotiated for dealing with Member States who are at risk of becoming a financial liability.

The Central Bank of the currency should be a wholly independent agency, with a mission as defined by treaty, to fight inflation and ensure the financial stability of the union. Membership of the board should broadly reflect the national, political and monetary diversity of the union. The participant nations should also study the creation of a pan-regional clearing bank (PCB) to settle the balance of transactions that give rise to trade surpluses or deficits. Such a scheme would allow for the discipline of member nations with trade deficits.Higher overdrafts would incur an interest charge on a rising scale. A country that breached half its overdraft would be required to sell some of its gold reserves to the PCB and to prohibit capital exports, and ultimately face expulsion

The final treaty should include a customs union, as well as an institutional process by which certain customs regulations, including harmonization of consumer protection, freedom of movement of goods and persons, freedom of movement of workers, etc. may be negotiated. The treaty should also include a mechanism for judicial conflict resolution between individuals and businesses, when dealing with trans-national economic disputes within the union.

Timetable
The government of Knootoss would suggest this time table for the process of introducing a regional currency:

• Nov-Dec 2011: Negotiation and ratification of a bilateral agreement between the Knootian Federation, Pantocratoria and the Southern Low Countries. Framework negotiations with all interested parties about currency name and appearance.
• January 1st, 2012: Regional currency introduced in the Knootian Federation, Pantocratoria and the Southern Low Countries.
• Jan-July 2012: Regional currency governed by bilateral governance arrangements. All interested parties negotiate institutional arrangements, customs union, etc.
• July 1st, 2012: Regional currency introduced in the Abt Republic, the Confederation of Sovereign States and the Fiefdom of Leagran. Peg established with the currencies of Balthorvia, Excalbia, Snefaldia, the Resurgent Dream and Upper Virginia. Governance of the currency transferred to new institutions.
• January 1st, 2013: Possible introduction of the new currency in Excalbia, Upper Virginia and Balthorvia.

Can your government please signal whether there is broad agreement to this agenda, and if you are willing to attend a conference about stage one of the negotiations about a joint currency?

Yours sincerely,

Femke Vologdov

This government communication has been printed on biodegradable paper. All carbon emissions associated with the creation of this government communication have been off-set with new plantings in Colombia, using the Pink Bunny Tree™ Carbon Offset Scheme, sponsored by the Pink Bunny Cola Corporation and the Global Hell Group. For more information about the Pink Bunny Tree™ Carbon Offset Scheme, consult http://www.futureproof.kn.

OOC: Haven't gotten an answer from TRD yet, this post assumes that they might be interested in a currency peg. If not, please disregard!

[Snefaldia]

Ministry of Commerce

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Office of the First Minister of Commerce
7 Ministry Circle- Sargedain
Dayan 1256, Snefaldia
http://www.khsyon.sne.gov

From: Sarah ben-David, First Minister of Commerce, States-Federation of Snefaldia
To: Her Excellency Femke Vologdov Countess Pereslavl, Prime Minister of Knootoss
Copy: His Excellency Ambalinggu, Mengetemu, First Minister of Finance
Subject:Currency Union Proposal
Classification: RESTRICTED

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Your Excellency,

Upon review of the proposal of the Dutch Democratic Republic, and initial position analyses conducted by the Ministries of Commerce and Finance, I am confident now in the presentation of the position of my Lord Chancellor's government on the matter.

Although the political will does not exist for the institution of a new currency, my Lord Chancellor's government supports both a customs union and pegging the me-wak to the proposed Atlantic Ducat. Any future shift to the Ducat once implemented will be after a referendum vote of the citizens of Snefaldia, and pending future evaluation of the union and its strength.

We look forward to the multilateral negotiations proposed by the Dutch Democratic Republic in the fourth round, July 1st.

Most sincerely,

Sarah ben-David
First Minister

[Pantocratoria]

"Strange," said Sir Thierry del Moray, looking at his cellular phone in a confused fashion. "No signal. Somebody try to get Prime Minister Trinh back for me please?"

[The Resurgent Dream]

The cold truth was that the Prime Minister did not wish to take this call from her country's closest friend and largest trading partner. The recent conflict in Iesus Christi, fall from making the Caldan people or their leaders feel closer to those who had fought and died beside them, had instead revealed a gap in understanding between the Resurgent Dream and its allies, one the Prime Minister was at a loss to articulate, much less to bridge. They did not understand the Caldan withdrawal from the world after the end of the Iesian conflict. They had not really even noted it. Trinh did not simply view the proposals for a currency union as an unwise policy, as she or any other Caldan Premier would have at another time. She found it somehow surreal. And Sir Thierry's call, a mark of courtesy and respect from her country's closest ally, felt somehow like nagging. It was not a rational thought for a Prime Minister to have. It was certainly not a professional thought. Nonetheless, it was her sentiment and she could not will it away.

Trinh took a deep drink from the glass of water sitting on her desk and dutifully picked up the phone. In what she hoped was a friendly tone, she answered, "Hello, Sir Thierry. I'm glad you found the time to call!"

[Pantocratoria]

"I'm glad you found the time to answer, Ms Prime Minister." replied Sir Thierry del Moray. If he had failed to note the Caldan withdrawal from the world after the war he could be hardly blamed for it, since the war had ended so very recently. Likewise he was unprepared for Trinh's antipathy for the idea he was about to discuss with her. "I trust you've been well?" Sir Thierry always found it awkward that Trinh had no husband about whose well-being he could inquire too.

After exchanging pleasantries, the Chancellor got to business.

"I am sitting here with my key advisers and some trusted members of cabinet discussing the future." Sir Thierry began. "The conclusion to the Iesus Christi War is bitter-sweet at best, certainly everyone is relieved that the slaughter has come to a close but I don't think I am out of place when I confide to you my fears that the sacrifices of our troops were largely in vain. Thanks to Xirnium and Knootoss never really being able to get along, it looks like the Treaty of Lyeithen has become side-lined, and to be quite honest we have serious reservations about the future of the region. I must confess that I always had misgivings about Lyeithen, not its objectives, but the whole nature of it. Rather too fragile, as it now seems, to form the basis for regional cooperation and security for which we had all hoped. I am not saying, incidentally, that it should be formally disposed of, but that we must now seek new strategies for ensuring peace, stability, security and prosperity in the Western Atlantic."

"Ms Prime Minister, I am aware that there is a vague degree of antipathy in your government towards the idea you've certainly heard bandied about, vis-a-vis a regional currency union, and I can only assume that has something to do with the Knootians." Sir Thierry speculated with a searching look on his face, even though Trinh could not see his face through the telephone. "They do rather make a mess of things with their ham-fisted diplomacy. They've wanted a currency union for years, but until now there hasn't been a compelling reason why the rest of us should consider joining one. So I don't want you to think of this as a Knootian effort, this won't end up like another Iesus Christi. No, the most compelling reason we have for pursuing regional currency union is that Lyeithen has proven ineffective as an instrument ensuring cooperation. Despite the important principles all of our nations share, or thought we shared around the Lyeithen negotiating table, it seems that our common interests were not shared enough to ensure our cooperation. Xirnium's abuse of the Atlantic Court and disregard for required diplomatic consultation, Aerion's continued flaunting of its human rights provisions, and the Knootian withdrawal were all symptomatic that despite the common cultural, geographic, and political heritage of the Atlantican nations, a treaty alone cannot actually provide common interest."

Sir Thierry paused long enough to draw breath but not long enough for Trinh to think he had finished speaking.

"And so I'd like you to consider the possibility of pursuing a regional currency union as part of a broader series of initiatives, led by the Caldan Union and by Pantocratoria together, to deepen the common interests of the nations of our region." he concluded. "I'm not at all hung up on details. And I don't want to just stop with economics. But you and I are of a different ilk to the men and women from our nations who drew up Lyeithen, after all, and we understand that economic reality is a powerful motivator. One final thing, I know the Knootians didn't send their timeline to them, but I am absolutely committed to pushing for Xirnium to join as well. Ultimately of course it is up to them as it will be up to you, but I think if we do this right, we can make this appealing to the whole region, and if we do this right, it will be most effective if it includes the whole region."

[The Resurgent Dream]

"I'm glad you found the time to answer, Ms Prime Minister." replied Sir Thierry del Moray.

“Amber, please,” the Prime Minister said amicably.

If he had failed to note the Caldan withdrawal from the world after the war he could be hardly blamed for it, since the war had ended so very recently. Likewise he was unprepared for Trinh's antipathy for the idea he was about to discuss with her. "I trust you've been well?" Sir Thierry always found it awkward that Trinh had no husband about whose well-being he could inquire too.

“Quite,” Trinh answered him. “I hope that you and Dame Marie-Claire are well.”

"I am sitting here with my key advisers and some trusted members of cabinet discussing the future." Sir Thierry began. "The conclusion to the Iesus Christi War is bitter-sweet at best, certainly everyone is relieved that the slaughter has come to a close but I don't think I am out of place when I confide to you my fears that the sacrifices of our troops were largely in vain. Thanks to Xirnium and Knootoss never really being able to get along, it looks like the Treaty of Lyeithen has become side-lined, and to be quite honest we have serious reservations about the future of the region. I must confess that I always had misgivings about Lyeithen, not its objectives, but the whole nature of it. Rather too fragile, as it now seems, to form the basis for regional cooperation and security for which we had all hoped. I am not saying, incidentally, that it should be formally disposed of, but that we must now seek new strategies for ensuring peace, stability, security and prosperity in the Western Atlantic."

“I quite agree,” Trinh replied simply.

"Ms Prime Minister, I am aware that there is a vague degree of antipathy in your government towards the idea you've certainly heard bandied about, vis-a-vis a regional currency union, and I can only assume that has something to do with the Knootians." Sir Thierry speculated with a searching look on his face, even though Trinh could not see his face through the telephone. "They do rather make a mess of things with their ham-fisted diplomacy. They've wanted a currency union for years, but until now there hasn't been a compelling reason why the rest of us should consider joining one. So I don't want you to think of this as a Knootian effort, this won't end up like another Iesus Christi. No, the most compelling reason we have for pursuing regional currency union is that Lyeithen has proven ineffective as an instrument ensuring cooperation. Despite the important principles all of our nations share, or thought we shared around the Lyeithen negotiating table, it seems that our common interests were not shared enough to ensure our cooperation. Xirnium's abuse of the Atlantic Court and disregard for required diplomatic consultation, Aerion's continued flaunting of its human rights provisions, and the Knootian withdrawal were all symptomatic that despite the common cultural, geographic, and political heritage of the Atlantican nations, a treaty alone cannot actually provide common interest."

Sir Thierry paused long enough to draw breath but not long enough for Trinh to think he had finished speaking.

"And so I'd like you to consider the possibility of pursuing a regional currency union as part of a broader series of initiatives, led by the Caldan Union and by Pantocratoria together, to deepen the common interests of the nations of our region." he concluded. "I'm not at all hung up on details. And I don't want to just stop with economics. But you and I are of a different ilk to the men and women from our nations who drew up Lyeithen, after all, and we understand that economic reality is a powerful motivator. One final thing, I know the Knootians didn't send their timeline to them, but I am absolutely committed to pushing for Xirnium to join as well. Ultimately of course it is up to them as it will be up to you, but I think if we do this right, we can make this appealing to the whole region, and if we do this right, it will be most effective if it includes the whole region."

“Unfortunately, I’m afraid I must disappoint you. This government’s opposition to an Atlantic currency union is not due to the sometimes...overzealous....diplomacy of our Knootian allies but to our assessment of the merits of the idea. Let’s begin with the actual economics of a currency union. There was recently a study done in this country by Dr. Thomas Jennings on regional differentiation on the inflation rate of the Sterling and the consequent costs to the economy. Treasury predicts that this sort of differentiation would be magnified greatly in any potential currency union. Moreover, the proposed currency union would combine the developed, stable economies of the Western Atlantic, which have naturally inflation phobic interests, with developing economies with a natural interest in inflationary policies to encourage growth and force down unemployment. The only ways to combine those monetary systems is either to force harmful inflation on the developed countries or to wreck the inefficient economies of the Atlantic, eventually forcing us to bail them out. Those inherent disadvantages will only be exacerbated by the sorts of differences on issues of monetary policy certain to arise between nations as different in their economic orientation as Aerion and Xirnium.”

Trinh barely paused to draw breath. “The geopolitics of it are equally problematic. I am frankly at a loss to understand the core argument, advanced both by your government and that of Excalbia, about attempting repair the damage done to regional cooperation in the Western Atlantic. A currency union does not address the real differences between the Western Atlantic nations. Those differences not only remain nearly intractable but it is becoming increasingly apparent that neither the Knootians nor the Xirniumites have any genuine desire to reconcile. A currency union only amplifies the economic damage which can be done by these divisions. Moreover, to the extent that, as you note, a currency union creates an underlying economic reality, I am not certain it would be a welcome one. It is shared values which make such ties comfortable. The Caldan Union does not wish to be bound so intimately to nations like Aerion, Balthorvia or South Epheron.”

Trinh took a slightly longer pause, sipping from her water. “Of course, the ultimate issue is sovereignty. This government views monetary policy as an integral part of Caldan sovereignty for the exercise of which it is directly responsible. It is not abstract or symbolic but an important sphere of governance with immediate effects on the lives of the Caldan people. No Caldan government could surrender it, even provisionally or temporarily, without fundamentally abandoning a core government responsibility. The Caldan Union of the Resurgent Dream cannot agree to join or be pegged to any regional currency union and is strongly opposed to the formation of any such union in the Western Atlantic. I’m sorry, Sir Thierry.”

[Pantocratoria]

"Well that rather clarifies the matter." Sir Thierry replied with a sour look on his face. He looked up to one of his advisors and made a face. "I didn't call you to argue the merits of the idea but rather to ask that you consider it, and I have found that you have apparently already done so, albeit in isolation from us entirely. Now please don't take this as an attempt to persuade you, because I doubt very much a phone call from me could do that when you have so esteemed a person as Dr Thomas Jennings on the other side of the argument. I do however take to task this stuff about shared values."

"First, the idea that we've intractable differences I find a dramatic and disturbing departure from all previous Caldan foreign policy in the region. It is something, frankly, I had sooner thought to hear from my own Deputy Chancellor than a Caldan Prime Minister." Sir Thierry said. "But if we grant that, I still dismiss the idea that shared values make anybody comfortable. In the last seven years alone Pantocratoria has come to the brink of war with Knootoss, the Confederation of Sovereign States, and Xirnium, and has been to war in Iesus Christi, Upper Virginia and Marlund. I do not derive much comfort when I think of the history and values that Pantocratoria and Knootoss share, for instance, when not long ago we stood on the brink of war. What we lacked at that time was a common-enough interest. Whether you see a currency union as a boon or not, you must surely admit that values alone haven't proved enough for the Western Atlantic. And nor have treaties based on those values alone, like Lyeithen."

"Frankly, Amber, I am not inclined to recommend that His Majesty find some suitable Xirniumite to whom to wed his youngest daughter." Sir Thierry said, trying to make his tone more jocular. "And yet, the alliances based on royal marriages are thus far the ones which have most stood the test of time in our region! Common interest is what holds our nations together. Now, if you don't want to expand on the common interests of the region by participating in a currency union at this time, then that is a decision which I naturally have to accept. But Pantocratoria is just as supportive of this idea as you seem opposed, and I intend to pursue it. I don't want this to be an unnecessarily contentious issue between us."