Well, yesterday the Spanish parliament rolled over like a dead sheep and voted to change its Constitution to incorporate a deficit cap. It seems President Zapatero was anxious to prove Spain in not now a satrapy of Brussels. Which is a strange way of going about it. One of the minority party leaders said the the agreement between the two major parties represented "a rupture in the parliamentary process." The PSOE minority socialist government may now lose the essential support of small parties but what does it matter? It's already a dead duck administration, with Yesterday's Man at the (broken) helm. Roll on the November elections. And the ridiculous period of unrealistic promises that always precedes these.
As for the world and Europe at large, pessimism continues to grow . .
The Western world is at mounting risk of a double-dip recession after key measures of confidence collapsed in both the United States and Europe, with Germany suffering the steepest one-month fall since records began in the 1970s. . . The drop was far steeper than expected and follows grim warnings over the weekend from Christine Lagarde, new chief of the IMF, that the global crisis is entering 'a dangerous new phase'. The IMF has slashed its growth forecast for America and Europe and has called on both the US Federal Reserve and the ECB to stand ready for 'further easing of monetary policy' - implying a fresh blast of quantitative easing (QE) by the Fed.
In Europe the picture is as bad if not worse than in the USA. The eurozone is already on the cusp of recession even before austerity bites in Italy and France, and bites harder in Spain, Portugal, Greece, and Ireland. . . The ECB's president, signalled this week that rate rises are off the table but he has little scope for outright stimulus. The ECB is acutely vulnerable after the German President accused the bank of going "far beyond" its mandate and engaging in 'legally questionable' purchases of Spanish and Italian bonds.
Any suspicion that the ECB is loosening policy to nurse southern Europe through its debt crisis will trigger a political backlash in Berlin, though with Germany itself now flirting with recession as exports buckle this may help paper over EMU divisions for a while.
Hans-Olaf Henkel, former head of Germany's industry federation (BDI), wrote in the Financial Times that his support for the euro had been "the biggest professional mistake I have ever made". He described EMU as an unworkable experiment that is turning Europe's nations against each other. He called for a 'Plan C' under which Germany, The Netherlands, Austria, and Finland break away and form their own currency, leaving the South with a weaker euro and a chance to restore growth. Some Northern banks would have to be nationalised for a while to prevent losses on Southern debt causing a financial crisis.
Stephen Jen from SLJ Macro Partners said the next phases of the eurozone crisis is likely to come when the debtor states conclude that it is no longer worth putting up with the pain of EU-imposed austerity. "I think this will happen in weeks rather than months."
As for the troubled banks . .
A fresh round of capitalisation for European banks was firmly ruled out by EU officials and bankers when they appeared before an emergency meeting of the European Parliament's economic committee. The officials poured cold water on calls from Christine Lagarde, head of the IMF for "mandatory" recapitalisation to avoid another financial crisis but acknowledged that the EU economy was continuing to weaken.
The president of the European Central Bank, said there was no shortage of liquidity in the European banking system. EU economic commissioner insisted that the health of EU banks had improved over the last year.
Both urged eurozone Governments to move faster to implement the July 21 heads of agreements which makes provision for a second bail out for the weaker states.
Mr Rehn said targets set for privatising state assets in Greece might have to be revised because of the weakness of the Athens stock exchange.
Mr Rehn was gloomy about the economic outlook warning that after expanding by just 0.2pc in the second quarter the short-term indicators pointed to a "further moderation of growth." He said he was seriously concerned that the financial turbulence would spill over and harm the recovery of the "real economy."
Mr Rehn made it clear that there would be no rush to push ahead with the proposals to use euro-zone bonds, opposed by Germany and France to ease the crisis. He said they would have "unavoidable implications for fiscal sovereignty".