WHEN Russia worries publicly about the financial stability of the European Union, as opposed to the other way around, you know the euro is in real trouble. There is a sense in Brussels that the defenders of the euro zone have run out of ammunition and out of ideas.
One reason is that the politicians cannot keep up with the markets. The euro zone has yet to implement the decisions of July's summit, but the next shock wave has already struck. Another is that the performance of Greece under the EU-IMF programme has been so poor that every quarterly assessment to approve the next tranche of loans becomes a cliff-hanger.
So each episode of market panic is worse than the previous one, the weapons in hand look inadequate, contagion spreads, while governments and institutions lose their nerve.
The proposed increase in the firepower of the main bail-out fund, the EFSF, will not be enough to protect Italy should it go under, as it has threatened to do in recent weeks. As one German official put it to me: "Italy will have to deal with its problems on its own." The ructions at the European Central Bank exposed by the resignation of its German chief economist, Jürgen Stark, raises concern about how much longer the ECB can keep buying up the bonds of vulnerable euro-zone states. The German constitutional court has not blocked the temporary bail-out system, but appears to have all but killed off the idea for now of issuing joint Eurobonds, the one idea that might have arrested the crisis in the short term (though lots of people think they might make the long-term problems worse).
German politicians now talk openly of cutting off Greece's lifeline and letting it fall out of the euro, causing another seizure in the markets, where French banks have now come into the firing line.
Greece's departure from the euro, if it happens, will be painful for both Greece and the rest of the euro zone, as Jean Pisani-Ferry, director of the Bruegel think-tank, points out. And there is the question nobody can answer: will Greece's exit remove the source of contagion, or ensure it spreads? Until now, nobody has dared test the proposition.
It is not impossible that the euro zone will be able to muddle along a bit longer: Greece may have done just enough in its latest plan to cut spending and raise revenues to receive the next tranche; the German parliament may be coaxed into approving the July decisions; the revamped EFSF may then be able to take up the bond-buying task from the ECB and a problem may be found to the problem of Finland's demand for collateral. Then what?
The situation is so dire that any bit of bad news would easily cause another collapse in the markets. So at the same time as Germany is talking of giving up on Greece, it is also talking about redesigning the euro zone. Done right, a new European architecture may ensure that such a crisis does not recur.
But as Barry Eichengreen points out, the problem is now, not tomorrow. It will take years to renegotiate and ratify new treaties, even assuming there is no blockage of the sort that beset the Constitutional Treaty. But the euro zone faces critical days and weeks.
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Today's "Time is running out"
"One reason is that the politicians cannot keep up with the markets. The euro zone has yet to implement the decisions of July's summit, but the next shock wave has already struck. Another is that the performance of Greece under the EU-IMF programme has been so poor that every quarterly assessment to approve the next tranche of loans becomes a cliff-hanger."
and last week's Charlemagne: The End of Monnet(3Sep11)
"In normal times such compromises, checks and balances help with the democratic deficit by ensuring that states do not feel too trampled-upon. In troubled times, though, they mean that the EU struggles to act. Every response to the debt crisis has been subject to vetoes by governments and parliaments. Bond traders can move in seconds and hours; states in days and weeks; the EU typically takes months, years, even decades. The most responsive actor across the euro zone in the crisis has been the European Central Bank, unelected and independent of any government."
make me nervous. I personally am not subject to "the democracy deficit", but my friends and family are. Is there some way to hedge their exposure to French banks, the way I can hedge my exposure to American banks through XLF or SEF?
"I personally am not subject to "the democracy deficit", but my friends and family are."
How so?
After witnessing all these screaming and kicking, I am inclined to think the structure of the EU is simply ill-fitted to handle a crisis of such a scale and complexity, even if we could assume each member country knew what it wanted. Now, on top of this structural weakness, adding the seemingly obvious observation that most of the member countries do not really know what they want out of the EU project from this point on, really defies any hope for the light at the end of the tunnel.
Directly to Charlemagne and his cohort of anti-Euro supporters
Let me repeat condensed opinions I've expressed for almost two years and express a couple of new ones.
-You are fully entitled to express your view that the Euro is undesirable and will not survive.
-You may even be right: currencies come and go and currency unions have always had short life spans.
-With the possible exception of the US dollar, no currency has left any historical impact, good or bad. Even the US dollar that may have helped to unite the economy of the USA did nothing to prevent the bloodiest war for America: the Civil War.
-Currencies are financial tools (one of these days they will likely be replaced by a fully virtual instrument) and your sound and fury against the Euro looks somewhat immature. Like cheer leading for Manchester United instead of Manchester City or vice versa.
-It has the disadvantage, for you, to harden the support for the Euro. In the last year and a half the institutions that manage the Euro have been strengthened to a point not even the most ardent Euro lover would dream possible a year ago. Even I, a moderate Euro supporter who believes it was introduced a little too soon and too hastily, do not like very much the haste with which its institutions are being strengthened. And blame a lot of it on your somewhat juvenile efforts to bring the Euro down.
-Most important of all: as all major national economies managers and politicians now recognize, the demise of the Euro would now bring a highly disruptive turmoil. Although not publicly admitted, it's clearly accepted that the British economy would be the worst affected. America would be the second more affected although to a much lower degree.
-So your barely hidden tone of victory that the Euro is in its last days is very dangerous for you personally whatever happens: if the Euro survives (in my opinion, the likeliest outcome) you'll look like a fool.
-If it doesn't survive, you and the Economist will be blamed among others for the demise. Don't forget that despite all your efforts, in the last Economist debate moderated by yourself, support for the Euro went up from 62% last year to 64% a couple of months ago.
-Enthusiasm for the cause we wish to win is, in journalism, rarely a good substitute for realism.
-Don't forget Bill Emmott, a first class journalist both in quality and intellectual honesty. He made the mistake of believing in the good intentions of Intelligence Services (mostly American in his case), WMD and similar stupidities and backed the Iraq war. Poor Mr. Emmott paid dearly for a genuine error of judgement. And with him so did The Economist, its reputation having taken a hard knock amongst all independent opinion.
-To be honest, I'm not terribly worried about consequences for you: you are a good fact finder but your tendency to believe in what you wish to believe and being a gossiper make you not a first class journalist. Neither am I too worried about John Micklethwait who is responsible, in my opinion, for bringing down the Economist reputation for being unbiased.
-But, in ancient English, I do be worried about another knock on the Economist reputation: I've been reading it almost everyday for at least sixty years and wouldn't like to see it enter a downward spiral.
Which will happen whether the Euro survives or not, a very secondary matter in today's world.
The important subject is whether we are repeating the 1932/1945 tragedy or can still avoid it.
You are not helping to avoid it.
The EU was destined to fail as a political body, it is too fragmented to accomplish anything. As a unified market, it makes more sense although we see what happens when countries with weak currencies are suddenly given money worth many times what they're used to.
Germany should cover France but let Greece and the rest sink. The Greeks sound pretty lazy unless it comes to protesting to save their entitlements.
When I was young, people said "money does not grow on the trees"?. Now-a-days, politicians say "the money will be paid by someone behind the trees"?.
Every time, a country is at risk of default, policymakers in the "?west' reacted similarly: kick the 'can' down the road.....
I do not understand why this article said and I quote:
"?. "Every quarterly assessment to approve the next tranche of loans becomes a cliff-hanger"?"?.
I get a headache; with all these economists, smart people in the "?west', they do not see this is not kick the "?can' down the road?
Let's face it; the chicken will finally come home to roast sooner or later..... The longer it waits the more damages it may cause....
We should let them default, Iceland, Greece, Spain, Italy..... and U.S.A. too.....
Why people don't see that????
I do not understand one thing. It is clear for all that Greece is unable to pay back what they borrow, for at leas one year. Who was so stupid to lend them money in this conditions? (besides french banks)
You can expand the question to Italy, Spain and a few others....
Legions of bankers and politicians must go to prison for having committed treason to their respective homelands. Europe is becoming the 3. world - fact is: the Mediterranean countries have more in common with Africa than Real Europe: Germany, Benelux and the Nordic countries.
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