The Euro is flatlining; surely it would be kinder to pull the plug!
As the Americans make an 11th hour deal to increase their hideously bloated overspend, the focus of the jittery Gnomes of Zürich and elsewhere swings like a pendulum back to the Eurozone. Am I the only one who can see the resemblance between the Eurozone crisis and that scene in Star Wars where the Death Star blows up?
It is looking ever more likely that both Spain and Italy are going to need a bailout and investors are increasingly nervous about this. Many are opting to put their trust and their money into Germany. The yield might be much lower, but it’s a safe bet that they can actually get their money back when their bonds mature! As the Italian and Spanish finance ministers meet and now doubt squabble over what steps must be taken I feel that Euro finance mandarins across the continent really need to consider the words of Morgan Stanley’s currency chief Hans Redeker “…it [the Eurozone] either creates a central fiscal authority or accepts reality and starts to think the unthinkable, which is to cut the currency union into workable chunks.”
These ‘workable chunks’ he mentions, could, for instance, be represented by individual countries. Maybe, to make it easier to differentiate the chunks, they could adopt different names for the Euro; a few names off the top of my head include calling it the Peseta in Spain, or the Lira in Italy. I don’t think the locals would notice to be quite honest, in fact they might even be grateful. Anyone who as been into a french supermarket in the last decade will have noticed that everything is priced in Euros and in Francs. To do away with the former would be to do them a favour!
Silly as it may sound, it seems a more sensible option than the actions taken by the European Central Bank on Friday. To purchase government bonds for two countries (Ireland and Portugal) which have already been bailed out, while leaving two others to languish in a myriad of debt simply beggars belief. As I have said before, I don’t believe that bailouts are the complete solution, but the ECB’s stance makes little sense especially since money was supposed to be earmarked to intervene with both Italy and Spain. What seems even more incredible is that the wealthier Eurozone countries are displaying none of the vigour with which they sought to hook Greece up to it’s Eurozone life support, to help Italy and Spain. Angela Merkel seems perfectly happy to stay in Austria for her holiday and the European Financial Stability Facility’s increase in funds (which could be used for such a bailout) remains to be ratified by member states.
Could it be that Ms Merkel and her ilk have seen the folly of perpetual bailouts and are now, perhaps subconsciously resigned to the potential that two big Eurozone economies will have to default on their debt? The ECB has acquired mammoth amounts of Greek, Portuguese and Irish debt, yet these countries are far from stable. In a rather odd turn around though, they ECB has now said that they WILL ‘actively implement’ a program to take on some of the Italian and Spanish debt. It has to be stressed however that this is very much a limited measure, designed to keep the wolves from the door in terms of keeping interest yields low until the Eurozone countries stump up the cash to help their floundering comrades. How long that will take is anyones guess, and I can’t see the markets being soothed by such a gesture for long!
One has to ask how many more countries is Germany going to have to bail out? It is a pertinent question in the light of reports that France is in danger of loosing its AAA rating. One thing to come out of all of this, is the fact that very few of my more Liberally inclined friends voice any criticisms about the extent of the cuts at home. As it is these cuts that have in part safeguarded Britain’s own AAA rating and sured up it’s position on world markets. True, they have made it more difficult to get a job in the real world, but by golly I take the solace in silencing those self-righteous Guardian readers!