[bribiaLaubysdggf]

Didn't read the article. I only believe he's gone when it's official. He had so many no-confidence stuff and other stunts that I don't trust his promises. Then again I'd care more if I was Italian.

[OQmYckYz]

There are two problems: Germans run the ECB (despite Draghi) and Germans don't run Club Med.

[P1international]

http://www.economist.com/node/21540255
Is this really the end?
Unless Germany and the ECB move quickly, the single currency’s collapse is looming

Nov 26th 2011 | from the print edition


EVEN as the euro zone hurtles towards a crash, most people are assuming that, in the end, European leaders will do whatever it takes to save the single currency. That is because the consequences of the euro’s destruction are so catastrophic that no sensible policymaker could stand by and let it happen.

A euro break-up would cause a global bust worse even than the one in 2008-09. The world’s most financially integrated region would be ripped apart by defaults, bank failures and the imposition of capital controls (see article). The euro zone could shatter into different pieces, or a large block in the north and a fragmented south. Amid the recriminations and broken treaties after the failure of the European Union’s biggest economic project, wild currency swings between those in the core and those in the periphery would almost certainly bring the single market to a shuddering halt. The survival of the EU itself would be in doubt.

Yet the threat of a disaster does not always stop it from happening. The chances of the euro zone being smashed apart have risen alarmingly, thanks to financial panic, a rapidly weakening economic outlook and pigheaded brinkmanship. The odds of a safe landing are dwindling fast.

Markets, manias and panics

Investors’ growing fears of a euro break-up have fed a run from the assets of weaker economies, a stampede that even strong actions by their governments cannot seem to stop. The latest example is Spain. Despite a sweeping election victory on November 20th for the People’s Party, committed to reform and austerity, the country’s borrowing costs have surged again. The government has just had to pay a 5.1% yield on three-month paper, more than twice as much as a month ago. Yields on ten-year bonds are above 6.5%. Italy’s new technocratic government under Mario Monti has not seen any relief either: ten-year yields remain well above 6%. Belgian and French borrowing costs are rising. And this week, an auction of German government Bunds flopped.

The panic engulfing Europe’s banks is no less alarming. Their access to wholesale funding markets has dried up, and the interbank market is increasingly stressed, as banks refuse to lend to each other. Firms are pulling deposits from peripheral countries’ banks. This backdoor run is forcing banks to sell assets and squeeze lending; the credit crunch could be deeper than the one Europe suffered after Lehman Brothers collapsed.

Add the ever greater fiscal austerity being imposed across Europe and a collapse in business and consumer confidence, and there is little doubt that the euro zone will see a deep recession in 2012—with a fall in output of perhaps as much as 2%. That will lead to a vicious feedback loop in which recession widens budget deficits, swells government debts and feeds popular opposition to austerity and reform. Fear of the consequences will then drive investors even faster towards the exits.

Past financial crises show that this downward spiral can be arrested only by bold policies to regain market confidence. But Europe’s policymakers seem unable or unwilling to be bold enough. The much-ballyhooed leveraging of the euro-zone rescue fund agreed on in October is going nowhere. Euro-zone leaders have become adept at talking up grand long-term plans to safeguard their currency—more intrusive fiscal supervision, new treaties to advance political integration. But they offer almost no ideas for containing today’s conflagration.

Germany’s cautious chancellor, Angela Merkel, can be ruthlessly efficient in politics: witness the way she helped to pull the rug from under Silvio Berlusconi. A credit crunch is harder to manipulate. Along with leaders of other creditor countries, she refuses to acknowledge the extent of the markets’ panic (see article). The European Central Bank (ECB) rejects the idea of acting as a lender of last resort to embattled, but solvent, governments. The fear of creating moral hazard, under which the offer of help eases the pressure on debtor countries to embrace reform, is seemingly enough to stop all rescue plans in their tracks. Yet that only reinforces investors’ nervousness about all euro-zone bonds, even Germany’s, and makes an eventual collapse of the currency more likely.

This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks. Any number of events, from the failure of a big bank to the collapse of a government to more dud bond auctions, could cause its demise. In the last week of January, Italy must refinance more than €30 billion ($40 billion) of bonds. If the markets balk, and the ECB refuses to blink, the world’s third-biggest sovereign borrower could be pushed into default.

The perils of brinkmanship

Can anything be done to avert disaster? The answer is still yes, but the scale of action needed is growing even as the time to act is running out. The only institution that can provide immediate relief is the ECB. As the lender of last resort, it must do more to save the banks by offering unlimited liquidity for longer duration against a broader range of collateral. Even if the ECB rejects this logic for governments—wrongly, in our view—large-scale bond-buying is surely now justified by the ECB’s own narrow interpretation of prudent central banking. That is because much looser monetary policy is necessary to stave off recession and deflation in the euro zone. If the ECB is to fulfil its mandate of price stability, it must prevent prices falling. That means cutting short-term rates and embarking on “quantitative easing” (buying government bonds) on a large scale. And since conditions are tightest in the peripheral economies, the ECB will have to buy their bonds disproportionately.

Vast monetary loosening should cushion the recession and buy time. Yet reviving confidence and luring investors back into sovereign bonds now needs more than ECB support, restructuring Greece’s debt and reforming Italy and Spain—ambitious though all this is. It also means creating a debt instrument that investors can believe in. And that requires a political bargain: financial support that peripheral countries need in exchange for rule changes that Germany and others demand.

This instrument must involve some joint liability for government debts. Unlimited Eurobonds have been ruled out by Mrs Merkel; they would probably fall foul of Germany’s constitutional court. But compromises exist, as suggested this week by the European Commission (see Charlemagne). One promising idea, from Germany’s Council of Economic Experts, is to mutualise all euro-zone debt above 60% of each country’s GDP, and to set aside a tranche of tax revenue to pay it off over the next 25 years. Yet Germany, still fretful about turning a currency union into a transfer union in which it forever supports the weaker members, has dismissed the idea.

This attitude has to change, or the euro will break up. Fears of moral hazard mean less now that all peripheral-country governments are committed to austerity and reform. Debt mutualisation can be devised to stop short of a permanent transfer union. Mrs Merkel and the ECB cannot continue to threaten feckless economies with exclusion from the euro in one breath and reassure markets by promising the euro’s salvation with the next. Unless she chooses soon, Germany’s chancellor will find that the choice has been made for her.


This cannot go on for much longer. Without a dramatic change of heart by the ECB and by European leaders, the single currency could break up within weeks.

$hit, meet fan.

[agildeta]

Somalia is a good example of a place that can't get worse.

[23tommy]

Don't worry I'm not coming to Denmark

[aquadayAquaks]

10 year BTPs flirting with 8%

[DumnEuronoumn]

The ECB appears to be taking the position that they must destroy the euro in order to save it.

Money is now too tight for germany, never mind for club med.

[T1ivuQGS]

Damn you for making ME think of it. *how do I ban someone...*

[P9CCd35R]

For the illiterate:

[Poeetiol]

Time to reoccupy the Rhineland?

And give some illegally occupied areas back to the rightful owners

[Quiniacab]

op ewig ongedeelt

[turbutbamethyg]

these days i wouldnt mind a bit of german conquest. oh and make sure you stab berlusconi in the ass for me.

[evennyNiz]

All the talk of conquest was too much for his German mind. He probably is going bezerk right now...

[Corporal White]

Is there any other side than utter suckiness to this ****ed up situation ?

[HaroTaure]

Is there any other side than utter suckiness to this ****ed up situation ?

Why is there no re-election? Obviously this wouldn't work more than once, but there's nothing much to lose, right?

[Jifyicyfuhpop]

Why is there no re-election? Obviously this wouldn't work more than once, but there's nothing much to lose, right?

A re-election would solve nothing. Flanders would vote a little bit more right. Wallonia would vote more left. And again we would face half of a legislature without a governement.

The problem is you only have regional parties in the federal parliament. This de facto means belgium as a unity doesn't exist. It is just a collection of diametrically opposed interests.

[alexbookhyip]

http://www.economist.com/node/21541840
The European Union in disarray
A comedy of euros
Britain had a bad summit, but the euro zone had a worse one

Dec 17th 2011


AS YOU read this, lawyers are busily drafting a European fiscal “compact” designed to restore discipline to the euro zone’s economies. In the new year all but one of the European Union’s 27 members are to start thrashing out this treaty’s details. Meanwhile the British government, having fallen out with all its 26 partners, is promising that it will remain a central part of the union—and that London will remain Europe’s financial capital. All is well.

Except that it isn’t. Merely to set out these purported achievements of the latest EU summit in Brussels is to show how hollow they are (see article). Once again Europe’s leaders have failed to solve the euro crisis. The new treaty could easily be killed by the markets or by its rejection in one or more euro-zone country. The EU has suffered plenty of disappointing summits without the sky falling in—a good many of them in the past year. But unlike the marathon dispute over a new constitution, the euro is in a race against time because markets are pushing countries to insolvency. As investors and voters lose faith, the task of saving the single currency grows harder. Sooner or later, the euro will be beyond saving.

This summit also threatens to change the nature of the EU—and not in a good way. One reason is that it has plotted a misguided course for the euro. The other is that Britain, long ambivalent about its membership, has moved closer towards dropping out, even if that would be more by accident than design. An EU without Britain would be more parochial and less liberal. An EU without the euro might not exist at all.

Is it really that bad?

For all the fuss about Britain, the main failure in Brussels was to draw up a plan to save the euro. That requires a trade-off. Governments need to bind themselves to credible fiscal rules that provide incentives for good behaviour. They need to assume some form of joint liability for debts, with only the well-behaved benefiting from the shelter of Eurobonds. In return the European Central Bank (ECB) needs to give total support to all solvent members. That would leave much to do, especially to unleash growth and to reform the banking system. But investors would at least see a clear path ahead.

Instead there was another fudge, with neither the governments nor the ECB doing enough. In the run-up to the summit, the ECB extended its support for euro-zone banks—in effect lending them unlimited cheap money. That will help the banks and might in theory feed the demand for euro-zone sovereign debt. But it hardly counts as the “big bazooka” investors want, if only because the banks are wary of taking losses on ever larger stashes of government debt. Moreover, the ECB remains adamant that it cannot intervene as the lender of last resort to euro-zone sovereigns.

The governments did even less. True, the leaders pledged extra money in the form of loans to the IMF and left open the possibility of boosting the euro zone’s own rescue fund. But there are already signs that not all the cash will turn up as promised. And the fiscal compact that was the summit’s centrepiece is flawed.

The idea is to write fiscal discipline into national constitutions and harness the EU’s institutions to punish profligacy and excess. But such a compact will not safeguard the euro against future booms and busts. Until financial markets crashed in 2008, Spain and Ireland were hailed as economic stars, with lower public-debt burdens and healthier budgets than Germany. By the time their public finances went visibly wrong, it was too late. Worse, the compact will not resolve today’s troubles. The package dwells too much on austerity, and too little on growth. That risks aggravating the deep Europe-wide recession threatening next year, which could prompt a downgrade of the entire zone’s credit ratings and cause economies to miss their deficit targets—triggering still more austerity.

Although the compact was greeted as the acme of European solidarity, it is more likely to provoke strife. The summit poured cold water on the idea of Eurobonds, in which all members would share some or all of the troubled economies’ burden of debt. Instead the adjustment is being imposed almost entirely on deficit countries, guaranteeing that it will be long and painful. If in the coming years elected governments that impose austerity stir up civil unrest, outside enforcers in the EU will before long become a target for popular rage.

Already governments that agreed to the idea of a compact are warning that its ratification depends upon the detail. The Irish government is under pressure to hold a referendum that it would struggle to win. Parliaments from Slovakia (in the euro) and the Czech Republic (outside) could balk. France’s opposition presidential candidate, who is leading in the polls, says he would renegotiate the deal to get Eurobonds and a more active ECB. All across Europe there are murmurs that Germany, which has benefited so handsomely from the euro, is asking too much of everybody else.

A poor hand misplayed

However did David Cameron, Britain’s prime minister, manage to unite them all? The answer is through a combination of political expediency, inept tactics and fumbled diplomacy. Mr Cameron’s plan was to seek safeguards for the single market and to subject some parts of financial regulation to unanimous approval, in exchange for backing a new treaty. When he failed to get what he wanted, he withheld his support.

In Mr Cameron’s defence, he has to contend not only with Conservative Eurosceptic backbenchers, but also a Eurosceptic public—just as Germany’s Angela Merkel and France’s Nicolas Sarkozy also have domestic political constraints. Furthermore, Britain has real cause to worry about financial regulation. London is host to by far the biggest financial-services industry in Europe—in some areas it has as much as 90% of the EU’s business. The European Commission, egged on by the French and others, has produced many daft proposals to regulate it, as well as suggesting a financial-transactions tax.

But if the politics was expedient, the tactics and the diplomacy were not. Mr Cameron knew what he wanted, but went about getting it the wrong way. He presented a last-minute unilateral demand that would have partially overturned the principle of majority voting on single-market rules, which Britain itself first put forward under Margaret Thatcher over 20 years ago. Had he prepared the ground with other governments in advance he might have succeeded. Had he talked to fellow centre-right leaders on the summit’s eve instead of staying out of their political group, he would have known that he could not.

Mr Cameron’s veto was self-defeating. He may have briefly basked in his backbenchers’ praise, but if his aim was to protect the City and the single market, he has failed. Both are threatened more by Britain’s absence from the summits of up to 26 leaders that will now take place than by Britain’s participation in a treaty of 27 that placed no constraints on it. For decades, British diplomacy has been guided by a determination to keep a seat at the table. It has worked: Britain has not been outvoted on a serious piece of financial-services legislation.

Instead of closing the door, mend the fence

If the euro collapses, or the treaty is stillborn, Mr Cameron may yet claim that he was right all along. It would certainly make his veto seem less momentous. However, other European countries will not soon forget Britain’s attempt to hold the summit to ransom at a vital moment—and to protect financial services, which many of them blame for the crisis. And the Tory Eurosceptics and their Liberal Democrat coalition partners are already at each other’s throats (see article).

At its worst, this might be the start of a process by which Britain falls out of the EU (see Bagehot). Yet it does not have to be—so long as Mr Cameron is prepared to mend fences and align his tactics with a strategy to be part of Europe.

He has made a start by withdrawing his futile threat to block the use of the EU’s buildings and institutions by the 26 members of the new treaty. As power shifts in Europe, there will be more opportunities. Britain can help other non-euro countries who gibe at the new treaty’s strictures as well as euro-zone countries that want to resist protectionism or over-regulation—including Germany. At the very least Mr Cameron should make up with Mrs Merkel, who had previously fought hard to keep the British at the table. A compromise that gives Britain some reassurance about the City and thus lets Mr Cameron return to the table may still be possible. Remember, his recalcitrance at the summit means that the new bulldog Cameron is better equipped to face down the Little Englanders. The question is not whether he can recover Britain’s position, but whether he is ready to do what it takes.

Ultimately, the euro zone faces a similar choice. Its members could strike a grand bargain that deploys the ECB’s balance-sheet and some form of Eurobond in exchange for fiscal integration. The question is not whether they can save the currency, but whether enough of them are prepared to pay the price. This summit suggests not.

[first_pr]

The EU in this crisis reminds me of the end of the Polish state.

[Gaiaakgyyyg]

This summit actually has so far had a bigger positive impact than I expected. Probably, this is due to everyone agreeing that investors would not have to take a "haircut" on any country's bonds other than Greece's.

[Valdoyes]

i should also point out that anything to do with the euro address the biggest problem at all. the fact that the european banking system is insolvent. this whole 'crisis' is really a banking crisis at its heart.