Yesterday in Brussels, Herman Van Rompuy opened the anarchic proceedings by saying he sensed “a strong will to compromise”. Something of a surreal soundbite and, as usual with the Nipponese Bard, completely wrong.
The popular maverick site Zero Hedge referred to this week’s Euro-bunfight as ‘yesterday’s dismally predictable non-event summit’ last night. They’re right on the money about it being just as unproductive as advertised – but actually I think it was highly significant for any number of reasons.
First off, it’s abundantly clear the eurogonks clearly have no idea which way is up either socially or economically. As the ZH piece noted, when citizens start taking money from the banks, the game’s up. When sick people can’t get medicines, the party’s over.
Second, as I posted yesterday, the maths show conclusively that the ‘honour thy debts’ strategy was so hopelessly misconceived, everyone has paid a mountain of money, at the end of which we’re all €20bn worse off than we were two years ago. I have no quarrel with the argument that says avoiding responsibility is wrong, but there are and always have been degrees of wrong: it is just as much the responsibility of bankers to tot up the numbers and say, “They ain’t gonna pay, let’s write it off”. Instead, what they do – always and without exception – is start The Hunt for the Last Resort Paymaster. And they whine and bitch and threaten to leave the planet and all the other sh*t these cannibals think is appropriate….and scared politicos fall for it.
The bad news is that, after the Greek ‘bailout’ aka insolvency fiasco of March, the very devious behaviour of the eurocrats and the ECB has destroyed the EU’s bond market for the foreseeable future. Fitch’s report of earlier in the week showed foreign investors had fled Spanish and Italian debt in huge numbers. Letting Greece off much earlier (and then demanding new rules) would’ve have cost – take a deep breath – over €400bn less. That’s because not only would we not have bailed the Greeks out, (€220bn and counting) we would not have the debt either (€220bn and counting). The banks would’ve had to to take the hit. Some would’ve blown over, but all of them would’ve learned a lesson.
Cowardice, my friends, is a very expensive weakness. The aftermath of most of Europe becoming insolvent would’ve been, in the medium term, an end to deficit economics for good, strict rules on sovereign borrowing and lending, and the collapse of the globalised banking system. All these would be an excellent idea, because they are all stupid ideas, and dysfunctional in practice. The irony of the whole shebang is that it was set up to fail by bankers….and these same bankers warn of Armageddon if and when it does fail. So we’re screwed if it doesn’t, and dead when it does. Such is banker logic.
But the past is gone forever and cannot be changed. Even Einstein appreciated that. The future, however, is not pre-ordained. Unless you’re Mitt Romney, that is, in which case you know when Jesus is coming back, and where. For the rest of us mere mortals, history is there to be made. Not, however, by the folks at the Summit.
Third, it is blindingly obvious that a mad form of austerity economics as practiced by Merkeschäuble and the Friedmen has the Germans in thrall, and an outmoded form of Blairite ‘Third Way’ socialism is suffocating the southern brain in the form of Mr Blancmange & the Keynsians. Fear not, I won’t harp on about debt forgiveness again – my point this time is far more significant than even that one: nothing is going to get done as long as this situation pertains, and the situation will pertain unless something deservedly ghastly happens to the Merkeschäuble.
Do not doubt that oxymorons will proliferate as more and more Sprouts try to square the circle: but as long as there are only two opposite ideas, nothing will get done. Surrounded in Brussels and threatened at home, Angela Merkel’s days of driving a tank over everyone else are over.
Finally – and this is the last time I’ll say it – Greece isn’t going to leave the eurozone: Draghi won’t let them, the Greeks themselves are wrongly terrified by the idea, and anyway a more pro-bailout Party line-up will emerge after the June 17th elections. Somehow in some way, there will be a compromise at the end of a long stand-off.
In short, it’s a shambles: such market confidence as is left (and I couldn’t find any this week past) will evaporate, and reappear over Spain, Italy and France in the less than ethereal form of further bond spikes. The eurozone – as this and thousands of other commentary sites have been predicting for two years – is finished. And my own view goes further: you can’t break up a currency area (with all the bitterness such would entail) and keep the EU going. It doesn’t work like that: the 67-year achievement of keeping France and Germany happy is about to end. It may take five years or five months, but it will end for this, and many other, reasons.
Everything from here on (bank-runs, pharmacy riots, coups et al accepted as possible) will be driven by events in Germany. As the dominant power – with a powerful banking community and an unforgiving electorate – it could not be otherwise.
I can tell you, following a few conversations yesterday afternoon, that the German banking community is exasperated beyond belief by yesterday’s truncated session in Brussels. Der Spiegel has already adopted a Grecophobic tone along with Bild Zeitung and several influential tabloids. The one thing bankers and voters have in Germany today is a fear of Germany beink pulled down by all ze uzzers who are just lazy schweinen loafink around in die strink vesten. Above that convenient bigotry – among the older professional – there remains a national obsession with the ever-present spectre of inflation. All these worrying factors are only going to get worse as the European Committee Car’s gearbox remains jammed in neutral. Look, it was a tank, now it’s a car, OK? This isn’t mixed metaphor, it’s events dear boy, events.
Germany only has one logical option now, and that is to get out of the euro. I also believe it is far further ahead on this project than anyone else in the eurozone, and – being Germans – they would run the operation like clockwork. Blitzausgang could begin at any time. One felt yesterday that this was clearly on the cards. The second Hollande started talking about eurobonds – which the French leader rightly considers a start along the road, if nothing else – Merkel said, “I believe that they are not a contribution to stimulating growth in the eurozone.” End of. The reality is that Berlin equally rightly fears eurobonds would only result in German taxpayers permanently underwriting the public finances of the entire eurozone.
“Italy can help persuade Germany to support Europe’s common good”, said Italian Prime Minister Mario Monti, once the memory of Merkel’s implacable features had faded slightly. Common good, one suspects, does not play well in electoral politics. But will Merkel ever accept the death of the euro?
The economic decision for Berlin sounds easy, but it isn’t: although they’ve enjoyed seven years in the last ten of strong export growth thanks to an artificially cheap currency, it’s easy to tot up the benefit, but not the likely cost. With at the very least Spain and Italy to come, the expense could easily blow Germany away.
The political decision for Merkel is also a complex one, and not getting any easier. To leave the eurozone would be seen by her opponents (and her own Party) as a crushing defeat for her Weltanschauung. But if couched in bellicose terms – suitably sprinkled with appeals to the Fatherland alongside more denigration of lazy spendthrift latins – it would also be seen as decisive leadership. It would further, I suspect, put the Opposition SPD on the back foot.
It’s very finely balanced, but perhaps geopolitics will tip the balance in favour of exit. When Berlin finally rejected Geithner’s amputation plan for Greece, my view was that the Bundesrepublik’s leaders were putting Germany first, not Europe. As the leading European power, she would have by far the most to gain from keeping Greece’s potential wealth out of American hands. Schäuble in particular is paranoid about US foreign policy aims, and Merkel has an instinctive dislike for Flash Tim and his leveraged bazooka: she regards the American view of borrowing to maintain debt (as do I) as certifiably insane. America may have bet the farm on Germany, but it’s going to have to find a new ally in Europe – and the Germans won’t let it be Greece.
No, I rather fancy Germany will leave the eurozone before Greece does.
The Slog 