This week sees yet another meeting of Eurozone leaders. On previous form, I would bet that the only outcome will be a series of half-measures and promises which will be primarily designed to reassure fund managers, investors and to placate the banks. The fate of the Euro will yet again, be postponed as millions of Europeans continue to stand in the fast-growing unemployment queue.
Theoretically, Euroleaders (or should I say Frau Merkel) will be deciding not-only the fate of the Euro but the fate of every economy in what used to be known as the “advanced industrial world”.
Austerity has become the new growth with the INEVITABLE result of ever-lengthening unemployment queues and increasingly turbulent currents of social unrest.
Received wisdom is that deficit reduction is more important than job creation through fiscal stimulus. The downside is that for countries which have already launched themselves on a deficit reduction programme, it is beginning to look as if there can never be quite enough deficit reduction because of rapidly decreasing tax revenue.
There will always be that no-man’s land between deficit reduction and fiscal stimulus. Not a single economy has arrived there yet.
However, what is even more worrying, is that there isn’t a single politician, banker or economist who can even begin to put a time frame on the process. Currently, it looks like an open-ended arrangement.
One thing that the average punter does NOT realise that there are initiatives and money movements within the banking system which he knows nothing about – unless of course, it is such a big move that the banking authorities decide that would be prudent to go public. Last week’s sudden announcement by central banks that they would “assist” European banks which needed US dollars was a case in point.
The coordinated move was so huge that the most likely cause was that one or two major European banks must have made THE phone-call to their own Treasury to say that they were about to go under. The U.S. Federal Reserve Bank, the European Central Bank, the Bank of England, the Bank of Japan, the Swiss National Bank, and the Bank of Canada lowered their rates for borrowing dollars from each other by a 0.5 percentage point to “ease strains in financial markets.” (a meaningless phrase).
They went on: “At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise,”
Even China took steps to stimulate domestic demand by lowering its central bank interest rate.
Make no mistake – there was a crisis.
Every action so far by central banks and politicians has been a temporary fix. They are still trying to figure out the cure – if indeed there is one.
Last week, the central banks merely threw a rope for Eurobanks to cling onto – but that does NOT solve – or even begin to solve the still-spreading sovereign debt crisis.
This week, communiques are being written, meetings are being conducted and financial horse-trading is taking place as under-qualified politicians attempt to put together a package which, in one fell swoop should solve the global financial crisis.
The whole circus will culminate in a December 9th Brussels summit ( another one) during which the 17 Eurozone leaders will be joined by the 10 non-Euro-participants and a series of agreements will be promulgated.
The ONLY agreement that they really need to pull out of the hat is a “contract” to coordinate Eurozone fiscal policies.
Merkel’s dream of a Federal Europe will have taken its first faltering step.
So far , the Markets have tended to play ball with the floundering politicians but even those eternal optimists are fast running out of patience.
The latest rally has no legs because the current assumption is that somehow (for the first time ever), Eurozone leaders will provide a solution.
So, what is the likelihood of a TARP (Toxic Asset Relief Programme)? What is the likelihood of a coordinated programme to recapitalise ALL the banks? What is the likelihood of Germany changing its mind on ever-increasing austerity programmes which are driving weak Euro economies to Depression (these days, mere Stagnation seems like an attractive alternative – an aspiration!)
So far, the Eurointransigence has been destructive: Unemployment, demotivated and desperate countries, amplifying hardship, collapsed governments.
The evidence so far suggests that those believing that this week will provide the Miracle in Brussels will be disappointed.
The weeks events began with today’s meeting between Chancellor Merkel and Nicolas Sarkozy – The Merkozy Meeting. The output was predictable with an early hint of further postponement.
German Chancellor Angela Merkel has called for “structural changes” after the keenly-watched meeting with French President Nicolas Sarkozy in Paris today. The two leaders said that they had agreed on a “comprehensive” agreement to be proposed on Friday at the summit. (What he meant was is that he had agreed with everything that Frau Merkel had proposed)
“This package shows that we are absolutely determined to keep the euro as a stable currency and as an important contributor to European stability,” said Merkel.
Among the proposals were that the European Court of Justice will have a say when countries break the legally established limit for public debt of 3% of GDP. Also, both leaders rejected the need for the joint issuance of European debt by member states, adding that socialising debt burdens is no solution. (Another Merkel victory).
Sarkozy has added that he expects all of the necessary negotiations to be finalised by March (no surprises there!) and that changes to the Treaty will be ratified in France, following the next national elections in March.
The pair indicated that it is yet to be seen if the changes will be adopted by all 27 European nations or simply the 17 Euro states.
Lastly, they also made it clear that it is their intention to continue working with the International Monetary Fund and to bring forward the implementation of the permanent rescue fund by a full year, to 2012.
Here in the United Kingdom, where politicians have recently voiced concerns on how EU treaty changes could affect Britain, Downing Street has said that there will be no referendum on the EU treaty changes.
A spokesman for Prime Minister said, “What is being talked about is a new set of rules for the Eurozone and how those countries that are members of the euro organise themselves on fiscal policy. There is no proposal on the table for a transfer of powers from the UK to Brussels. That is not what is being talked about…No-one has put that on the table and I don’t think it is likely to be on the table.”
At the end of the first day, it seems that we are about to be served-up yet another portion of bland European procrastination – but what an object lesson in Blatant Brinkmanship from the Germans!