The German Chancellor, Angela Merkel, and the French President, Nicolas Sarkozy, pledged to do “everything possible” to bolster the eurozone’s insolvent governments and banks, so preventing another wave of global financial panic. A “complete strategy”, no less, will be presented to the G20 Heads of Government summit in Cannes, early next month.
What this “something” is, wasn’t disclosed. Yet even this contrived and feeble display of Franco-German decisiveness was enough to send stock markets shooting up. So what if there’s still fundamental disagreement between France (massively expand the European Financial Stability Facility, with Germany paying most) and Germany itself (individual nations and private creditors should take the hit)?
After more than three years of sub-prime madness, and related sovereign debt angst, investors are deeply traumatised. Desperate for anything, however thin, that can be construed as good news, the markets indulged in the ultimate “relief rally”.
Is serious action, though, really in the pipeline? For all the bustle of this weekend’s G20 Finance Ministers’ meeting in Paris, we still don’t know. There’s talk of an aggressive “big bazooka” rescue plan being agreed by next week’s EU summit. Yet the only variable that appears to me lately to have changed is that the leading non-European powers are now indicating serious annoyance. America, in particular, is bringing immense pressure to bear.
The “euroquake” prospect, says President Barack Obama, is “scaring the world”. Hugely leveraged European banks are using the Federal Reserve’s “swap line” as a dollar umbilical cord. So Washington could turn strong words into rather uncomfortable actions. Already, the eight largest US money-market funds almost halved their lending last month to France’s cash-strapped banks.
Three months after private creditors agreed to a 21pc “haircut” on Greek debt, they’re now being pushed to accept bigger loses. Germany wants a 50pc to 60pc writedown, which would send shock waves through eurozone markets. So attempts are being made to “ring-fence” Europe’s banks and sovereigns, given that this cold blast of reality could send them sprawling.
While avoiding the ordeal of an outright Greek default, a “haircut” presents at least two obvious problems. Having failed to fiscally restructure, Greece would still receive a substantial debt restructuring. How would that go down in Ireland or Portugal – countries still working hard to get themselves back on track? Future attempts to impose budgetary discipline elsewhere in the eurozone would be derided.
The Telegraph
More:
http://www.telegraph.co.uk/finance/comment/8829493/Putting-an-end-to-the-euro-would-be-better-than-yet-another-bail-out.html
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