Papandreou….praying for a miracle

As predicted here yesterday morning, Jean-Claude Trichet’s silly decision to allow Greece to trade lead as gold turned the trading world violently against the Euro. The Dollar rose 1.6% against it on the news, and even Sterling was up nearly a whole point against the beleaguered EU currency.

The Central Bank’s hamfisted attempt at Alchemy in turn set various cats among flocks of Eurozone pigeons. The Slovak Prime Minister Robert Fico flatly refused to participate in the bailout, saying: “I don’t trust the Greeks. The approval by their Government is not enough. We want to see laws approved by the parliament leading to cuts in salaries, pensions and social benefits. Until then the Slovak cabinet will not authorise its loan.” Angela Merkel announced on national television that promised further tax relief would have to be cancelled due to the cost of the bailout: a convenient scapegoat for Frau Merkel perhaps – but one that can only intensify resentment among ordinary Germans. German newspaper Handelsblatt alleges that proposals to suspend voting rights in the European Council for member states “which have considerably violated the rules of European Economic and Monetary Law” will be forcibly pursued by Germany. Meanwhile, the French Government persists in its surreal view that the real problem in the EU is German success. French Finance Minister Christine Lagarde said (my emphasis):

There is an element of almost 1930s Soviet madness in that observation.

The FT’s Quentin Peel, observing the reaction to the bailout in Germany, argues that a likely result is ‘the Greek deal will simply reinforce German unhappiness about having given up the D-Mark for the Euro at all.’ German tabloid Bild yesterday featured on its front page the headline: “Why are our politicians breaking the EU Treaty?”quoting the no-bailout clause in the EU treaties.

As if to sum up the anarchy, respected journalist Wolfgang Munchau argued that ‘Greece will not get by without some form of debt forgiveness…A debt restructuring will eventually be necessary’. He added that the idea of a fiscal union and a single European bond “are [now] without alternative, as the experiment of a monetary union without political union has failed. The EU is thus about to confront a historic choice between integration and disintegration.”

How right he is.