Pretty speeches regarding solidarity will not solve the European debt crisis. Yet, as Greece smolders in riots and firebombs over various austerity measures, pretty speeches, untenable pledges regarding haircuts, and continual bickering remain the only action items of note coming from Europe.
Greece is not the only thing smoldering right now. Eurozone politics is on the front burner, with the heat on high. Please consider Europe Staggers as Critical Summit Looms
Europe’s smoldering financial crisis flared up on Wednesday, with riots over austerity spending in Greece, new signs of troubles in Spain and little indication that European leaders were moving any closer to agreement on a systemic approach to long-term stability.
In remarks to the German Parliament on Wednesday, Germany’s chancellor, Angela Merkel, tried to reassure the markets and answer some of her own critics by allaying fears about the future of the 16-nation monetary union.
“No one in Europe will be left alone, no one in Europe will be abandoned,” Mrs. Merkel said, offering an olive branch to her European partners, some of whom have questioned her commitment to the union. “Europe succeeds when it acts together and, I would add, Europe succeeds only when it acts together.”
Mrs. Merkel’s soothing words were undercut, for example, by her adamant rejection of euro bonds, European-wide bonds that would provide a way for the euro zone to pool its debt and risk, allowing weaker members to borrow at lower rates.
With Irish elections scheduled for early next year, investors worried that the opposition’s threatened move could soon become reality.
“Those who think we can unilaterally renege on senior bondholders against the wishes of the E.C.B. are living in fantasy land,” said Ireland’s finance minister, Brian Lenihan, referring to the European Central Bank.
In Greece, in a reminder of the social and political costs of extended austerity programs, Athens was hit with its seventh general strike this year, grounding flights, keeping ferries in ports, halting trains and closing government offices and schools.
Opposition to the measures, and to the pressure being applied by international creditors, was clear in the streets on Wednesday. Angry protesters wielded placards reading “I.M.F. out!” and “Let us not live as slaves!” while others chanted “Thieves, thieves!” and “Shame on you!” to unseen deputies in Parliament.
Recently, Merkel has been criticized for opposing an increase in the size of the nearly $1 trillion bailout fund operated by the European Union and the International Monetary Fund and for dismissing the euro-bond plan.
“Germany’s thinking was a bit simplistic on this,” said Jean-Claude Juncker, prime minister of Luxembourg and chairman of the group of euro-zone finance ministers, in a blistering attack last week in the German newspaper Die Zeit. “They are rejecting an idea before studying it.
In her remarks to Parliament on Wednesday, Mrs. Merkel tried to redefine the narrative of events shaking the union: “It is undeniable,” she said, “that some euro-zone countries face difficult challenges. But it is also undeniable that the euro has shown itself to be crisis-proof.”
Untenable Pledges Regarding Haircuts and a “Crisis-Proof” Euro
Does that look like a good backdrop for heading into a summit? I think not, and given that the Euro is in the midst of a crisis, Merkel’s statements about crisis-proof certainly look absurd.
Moreover, once Ireland’s finance minister is thrown out on his ass, we will see just who is in fantasy land regarding haircuts on bonds.
My position is that the sooner Ireland tells the IMF and EU where to go, the better off Ireland will be. For more on this angle, please see To Ireland With Love.
Agreement to Agree in 2013
The summit is about to start but there is so much bickering going on that the current discussion pertains to what the agreement will look like post 2013. Bloomberg reports EU Faces ‘Gridlock’ on Debt Crisis, Nears Deal on Post-2013 Tool
European Union divisions widened over how to contain the debt contagion that threatens the euro, limiting a summit starting today to agreeing on a crisis- management mechanism that takes effect in 2013.
Strife among Merkel, the European Central Bank, Luxembourg Prime Minister Jean-Claude Juncker, and the German domestic opposition intensified on the eve of the Brussels summit, marring confidence in Europe’s handling of the fiscal woes that forced Greece and Ireland to fall back on financial handouts.
EU governments are close to agreeing on a two-sentence amendment to the bloc’s Lisbon Treaty foreseeing a “mechanism to safeguard the stability of the euro area as a whole” with financial aid for distressed governments “subject to strict conditionality,” EU officials told reporters in Brussels yesterday.
Germany has failed to get a reference to possible costs for bondholders enshrined in the treaty and is virtually alone in pushing for the amendment to say that any financial assistance will only be offered as a “last resort,” the officials said.
Merkel continued to hold out against calls by ECB President Jean-Claude Trichet to put more money into the aid fund. The ECB has bought 72 billion euros of weaker countries’ debt since May under a policy without unanimous support on the bank’s council.
Driven by a German public outcry against aiding fiscally reckless countries, Merkel also ruled out retooling the support facility to buy troubled governments’ bonds and opposed further entwining Europe’s economies by consenting to joint borrowing.
Luxembourg’s Juncker, the promoter of the joint bond-sale proposal, said it won’t go anywhere at the summit. Juncker told Luxemburger Wort newspaper that Germany is “allergic” to the idea, fearing it would push up German borrowing costs.
Crisis Won’t Wait
One thing I am sure of is the crisis won’t wait until 2013.
Frank-Walter Steinmeier and Peer Steinbrück, former German foreign minister and former German minister of finance respectively, came up with a multi-point proposal that could conceivably work. Please see PIGS Exposure Table, Explaining the Panic by Numbers; Credit Warning in Spain, Belguim; Piecemeal Proposals Doomed for details.
That’s the good news. The bad news is the Steinmeier-Steinbrück plan would require agreements on haircuts, debt guarantees, E-bonds, fiscal policies, and debt rescues.
Good luck with that.
Mike “Mish” Shedlock
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