Your soaraway Slog offers the Drongo’s up-to-the-minute guide to the Eurozone before it all gets confusing again during the day:
It’s always good in these situations to know WTF you are. The story thus far:
France rejects Sarkozy, the side-effect being that Francois Hollande wins. Angela Markel retreats to her attic to chew on some roof timbers, because Monti and Rajoy now have a new playmate. Together the We Are Not Germany trio begin to pressure Berlin into a broad agreement to centralize bank regulation, provide bailout funds to Spain’s banks, and most importantly give the European Stability Mechanism (ESM) the ability both to buy periphery bonds flexibly, and rescue banks directly. However, as the ESM doesn’t exist – and the EFSF consists largely of Lidl lavatory paper – it’s time for a Summit. It decides nothing at all.
Spanish yields and spreads zoom in the opposite direction to that intended, and it soon becomes clear that nobody will lend Spain so much as the price of a Fundador brandy. What’s more, the bankling system is too broke and crooked to come to the government’s rescue, but we can’t have a full-on Eurozone bailout of Spain, because it says here in the script it will never be needed and we can’t afford it.
The traitorous swine in the BeundesRepublik Court make things even worse by pointing out that the ESM which doesn’t exist may well become unconstitutional when it does. Faced with this highly unusual confrontation with the law, markets price Spanish and Italian borrowing at a uniquely silly level, making it clear that the eurozone needs a “bridge” to the ESM event, by which time the German Court will have come to its senses.
Most everyone now spots that the ECB is the only available option, so Draghi makes a speech of unparalleled complexity and, before the smoke clears, quietly offers the Bank of Greece a large shovel with which to empty his bank at will. The Financial Times writes a piece debating whether this means that the Central Bank is abandoning its independence. I cancel my subscription to the Financial Times. Francois Hollande eyes the Greek shovel jealously. He mutters that the French one will have to be much bigger.
Jens Weidmann at the Bundesbank climbs the 2,000 steps in Schloss Merkel and implores his Fuhrerin to descend back into reality. Chomping on a cross-beam, she politely tells him to piss off. But Jens persists, arguing that the lunatics are running the asylum and so they must either make good their escape, or close it down. Meanwhile, in the dungeons several circular windowless levels below, Herr Schäublegruber sits in his Wolfschanze wheelchair, designing new humiliating tortures for when he finally becomes the Fiscal Union’s Oberstürmbannführer Finanz.
It is clear that the eurozone has completed its critical path analysis, and has moved officially into a rift situation. This may later become the Great European Rift Valley, and possibly the Grand Canyon. It all depends on what happens next. The Italian Stallion is what happens next.
Jens Weidmann is especially hurt when Moneybags Mario now rides in on a white charger and offers not quite a direct credit line to Spain and Italy, but nevertheless a crystal-clear promise of firing up the banknote production line until such time as the ESM is on stream…which sources in Germany are now suggesting the Constitutional Court thinks should be around the 32nd December 3019.
So Jens was upset because he wasn’t told about this in advance, and the Monti Casino of Rajoy were equally upset because there they were trying jolly hard, but these obstinate bloody krauts simply wouldn’t print any money. Something had to give: and as usual, it was Germany.
The ECB now promises ‘action this day’ (minus only the ‘action this’ packaging) on rapid implementation of a ‘backstop programme’. This will attempt to stop the Greeks from turning their backs on Brussels in favour of Washington. It is also designed to give Spain and Italy the breathing space they need to riot against Monti and topple Rajoy.
Meanwhile, the Eurozone bureaucratic machine starts on the construction of the ESM, finding this a tricky task….given that it’s probably illegal, and the last Eurosummit offered little in the way of guidance about members, money, stability, solvency or mechanisms.
But what the hell – it’s August. “Hurrah! We’re all on holiday. Bring me a bottle of your finest Asti Spumante, and none of that German Hock rubbish. Don’t mention being in hock, it’s vulgar. Enjoy the sunshine, keep an eye on Putin’s gin palace, and then we’ll all come back refreshed in September.”
Now read on.
The Slog 