November 10, 2012
Over the last few days, it seems to me as though the eurozone crisis has become much worse. Please don’t misunderstand me, there hasn’t been another bailout an it was hushed up … the Netherlands didn’t request help, no. Instead, there has been something of an unstitching behind the scenes.
If I think back to about this time last year, there were very few ideas as to how to the crisis could be solved. Over time, the Fiscal Compact and the Financial Transaction Tax were thrown about. There seemed to be full agreement that they could help prevent the next crisis, but will probably not do much for this one.
Then earlier this year there was a proposal for a banking union. It was just being sketched out around April and May of this year. It has since been agreed at a summit. After the summit, there are typically lots of politicians and policy folk that offer their thoughts about what the agreement actually means and how it might work in practice. As this debate grew, it became clear to everyone that breaking the link between failing banking systems and sovereign debt was vital. Without this nothing can happen.
Alas, over the last two weeks it seems as though any hope of this link existing has been scotched by Chancellor Merkel and others. In other words, the banking union is now unlikely to be agreed to if it does what it needs to do. Another EU fudge.
This is really problematic. I personally have always felt that much of the banking union was theoretical at best (the idea of a single supervisor being able to clean up the banking system by the start of 2013, as was first proposed, was the most ridiculous element for me, though the idea of anyone being willing to backstop the current system ran a very close second). But, it did offer a theory as to how one of the major problems in the crisis can be fixed. Now it doesn’t.
Where does this leave the euro? It’s best minds have been working on this for months. This was the solution. Now, if it cannot be implemented as required, it seems to me as though the eurozone is back to where it was perhaps one year ago.
First, there needs to be an idea, a concept. Then it can be expanded upon. Then it can be agreed upon in principle, with a timetable. In EU terms, this all takes time and we aren’t anywhere near implementation yet.
Now, minus a banking union that can do the job, we are once again without an idea about how to end the crisis. Just let that sink in for a moment. Take a second. Despite the fact that the Greek crisis first started to really show itself in late 2009 – three full years ago – we are back in a situation where, it seems, there is still no idea as to how to fix the crisis.
Things are a lot worse than they might seem.