Wednesday, July 20, 2011

Note: I thought I'd get this EU stuff out of the way with an early first post today. So, don't forget to both scroll down now for last night's and to tune in later for tonight's . . .

Thursday is truly D for Decision day for the EU. There are three key players in the drama/farce:- 1. The ECB, 2. The IMF, and 3. The EU. But not really, as the the third player is Germany alone. And her hard line has so far been backed by the IMF. Who said of the EU yesterday - “There is no coherent plan”. But maybe there will be by tomorrow night, however unlikely this looks right now.

Meanwhile, here's AEP on Mrs Merkel's dreadful dilemma. As he puts it:- “EU leaders would like to confine their summit to the details of debt buy-backs or 'selective defaults' for Greece, or cuts in the penal rate on rescue packages, but the crisis is once again a step ahead of politicians. Fear that Italy and Spain may be tipping into double-dip recessions as global growth falters has changed the landscape, threatening the debt dynamics of both countries. . . The EU has a long history of muddling through existential crises – though none quite as threatening as this – so it may find some way to fudge fiscal union with a formula that assuages German hawks and lawyers. If all else fails, it can still cajole or order the ECB to undertake mass bond purchases and usher in fiscal union by the back door. But there is a larger question: does Germany really want to pay the costs of monetary union any longer?” Well, we'll have the answer to this, one way or another, by tomorrow night.

On the same Daily Telegraph paper James Warner in similar vein opines that “Europe’s moment of truth is upon us. Above all, it is a moment of truth for Germany. The ultimate decision on whether to save the euro in its current form, reconstitute it in more sustainable guise, or let events run their course in disorderly exits and defaults, lies not with Europe as a whole, but with Germany . . . Events are moving at such a pace that the scheduled agenda for tomorrow’s summit of eurozone leaders – a second bailout for Greece – looks not just behind the curve but almost wholly irrelevant. . . We seem to be staring the biggest economic calamity since the 1930s in the face. No pressure then, but the onus is being firmly placed on Germany to do “the right thing” and save the euro. That’s the narrative, in any case. In fact, it doesn’t have to be that way . . . Any solution that involves a lurch towards fiscal union is likely to prove unacceptable to Germans . . . Culturally and instinctively, it runs contrary to very soul of Germany itself. Small wonder that Angela Merkel, the Chancellor, doesn’t know if she’s coming or going. . . . When the economically unsustainable (the euro in its current form) confronts the politically unacceptable (the fiscal union necessary to save it), other solutions have to be sought. One widely touted approach would be for Germany and its satellite states to create an independent currency. This would require substantial recapitalisation of the German banking system but would prevent wider default on euro loans in the rest of Europe. Another solution would be for those nations that cannot live within German disciplines simply to leave. If properly managed, this need not be the catastrophe the doomsters suggest. Yet if the solution is to be further fudge and prevarication, then we must truly fear for the future, for the eventual denouement will be very much worse. Do Europeans yet fully grasp these choices? It’s not clear they do.”

I'll look at the state of Britain tonight. This is important, of course, but of very much lower significance to the rest of the world than the EU debacle.

1 comment:

moscow said...

Colin,
Don't hold your breath.
Meanwhile..it has been a good day for Spain, Camps has resigned. Who said spaniards don't resign? It took a while...couple of years...but there you go. I'll open up the champagne...or the beer can.

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