December 6, 2011
A story on the BBC website caught my eye this morning. It seems to suggest that the prospect of a German debt devaluation is appealing to some in the German government.
Close followers of the eurozone debt debacle will remember the ‘leak’ from the German team negotiating with Greece some months ago that Greece might have to leave the euro. Was it effective? Perhaps? Did it take the conversation in the media – and therefore confidence levels in the euro – down a notch or two. It almost certainly did.
Then there was the comment from Chancellor Merkel at the last ‘make or break’ summit that 60 years of peace in Europe is at stake. Was that effective? Perhaps. It certainly gained lots of media attention. Was it subtle? Not very.
So is this latest round of brinkmanship a good idea?
Bearning in mind just how dire the situation appears to be, and that Brussels is preparing for a fourth make or break euro summit this year at the end of the week, is it even helpful?
With the markets seemingly running riot over national debt in recent weeks, this feels a little more like the threat of mutual destruction to me than the real desires of those in charge in Germany.
Three months to a new Treaty?
Also in that same story was a brief mention of the ‘new treaty’ that Merkel and Sarkozy have been suggesting for sometime. To quote, “and that a new treaty should be completed by March to ensure such a crisis never happens again.”
Is that March 2015? It must be. Can the EU really move so quickly to put such a thing in place?
One respectfully suggests that the euro may well be screwed if this is the ultimate plan. Please don’t misunderstand me, there clearly needs to be something that shores up the fiscal problems of Europe, and that needs to be a long term solution. But unless I am mistaken, the euro needs a short term fix to halt the slide towards bank runs and mayhem.
It needs that now.
That action would seem to come from the ECB and eurobonds, a subject that Mario Draghi and Ollie Rehn appear to be in some agreement over.
A new treaty would require non-stop negotiation from all member states for several months. Just to take two obvious English speaking examples, both Enda Kenny and David Cameron are on record as planning to ‘take back’ some control from Brussels. This would surely mean referendums at which it is not obvious the public will vote in favour. There would likely be referendums in other member states as well.
The prospect for the eurozone if such votes are not passed is pretty dire. If the markets don’t trust the leaders or the currency, the leaders of member states can’t agree and then the public says no, there are very few avenues left to peer down.
The prospect for Europe would be pretty dire too. With countries trying to renegotiate previous treaties, there would be ‘red lines’ everywhere and a probable impasse. All the old sticking points could suddenly be back on the table – fishing quotas, CAP reform, the Working Time Directive and who knows what else…?
The mere suggestion of this ought to make everyone in Brussels feel unwell.
Suddenly, ECB intervention and eurobonds seem to be quite acceptable!financialguy