The EU Finance Ministers’ summit has now been put off until October 23rd. And the final, final, final SarkoMerkel unveiling of the EU debt crisis solution will allegedly take place on 30th October. 48 hours before that meeting, Jean-Claude Trichet will be in retirement. The new head of the European Central Bank (ECB) will be an Italian, Mario Draghi. Are these two timelines connected? The Slog investigates.
The complexity of the eurozone crisis is now so labyrinthine, few observers are able to follow it – and none of them is able to say categorically what’s really going on, or even why. Overall, it’s obvious that a great deal of puffery is trying and failing to disguise the fact that everyone is stalling, and/or ekeing out the game to suit their own agendas. But those agendas are getting increasingly hard to divine with any degree of certainty.
As of early afternoon BST on Tuesday 11th October, this is a brief summary of how things stand:
1. The Berlin Government is pushing hard for its key EU partners to accept the inevitability of Greek default. But look behind the leaks, and neither Merkel nor her finance minister Wolfgang Schauble are pressing that hard. There are rumours (and press speculation) in Germany that the Merkel/Schauble game plan is to let things get terrible, and then pressure other member States into dramatic, Treaty-changing emergency measures giving them the bulk of control over eurozone fiscal discipline. Along the way, both members of this double-act intend to squeeze the balls of the sovereign lenders just a little harder every day.
2. L’homme dans la merde profonde is unquestionably Nicolas Sarkozy. He wants to stave off Greek default at all costs, in order to save his highly exposed banks; and yet he can’t avoid Greek default by accepting too severe a haircut for those banks, otherwise the Parisian bank French losses (for which his government is directly responsible) will be even worse.
3. Playing cat-and-mouse with the IMF/ECB/Brussels Troika is the Athens Government, which imagines that – once things get really terrible, and they threaten a disorderly default – debt forgiveness will be much more forthcoming from the sovereign lenders….and they may actually avoid decades of debt and serious damage to the country’s infrastructure. (For the same reason, they are doing just enough cutting to stay in touch with Troika targets, but no more). In a curious kind of way, in fact, Papandreou and Merkel are on the same side: they both know that their best bet is the fear of imminent meltdown. (And naturally, neither of them give a stuff if little Nico has to fork out half a trillion euros in French gold to save his banks).
4. Demanding that his ECB must only help here and there – and not under any circumstances become the guarantor of last resort – is the EU’s central bank boss, Jean-Claude Trichet. To keep the status of his beloved currency, he insists that eurobanks must keep their haircuts to a minimum, while sovereigns themselves must sort out how to repay their creditors….ie, get the money from the citizens. In this, he is supported by EU banking law, and firmly opposed by Merkel and Schauble…..who know that the only alternative to the ECB as guarantor of last resort would be the BundesRepublik getting that hospital pass. (They also know that the German electorate would string them up if such a thing should come to pass).
5. Refusing to budge an inch are the various assorted banks and sovereign lenders owed 350bn euros by the Athens regime. Despite daily, and increasingly farcical, attempts by Luxembourg’s Juncker and other chocolate soldiers to insist that them taking a crewcut is the only answer to the debt crisis, the moneylenders are stonewalling until a guarantor of last resort emerges. Only a thermo-nuclear situation of danger is likely to shift them from their redoubt, and perhaps even that wouldn’t. But as we saw clearly above, creating fear among the banks of losing the whole kit and caboodle could, sooner or later, turn into a decisive tool for any Greco-German axis.
6. Tough, tired and trying to make their report public, the Troika has been fobbed off, postponed and ignored by France and Germany….because up until now, they both had an interest in suppressing the bad news. But as we’ve seen, domestic fiscal, electoral and even judicial pressures have forced Angela Merkel to rethink. The Berlin tactic is now to keep scaring other EU States with the prospect of a messy, unstructured Greek default….and to push Sarkozy into a corner where he and France alone bail out their banking system…without robbing the EFSF.
None of this jockeying is particularly realistic, for one simple reason: even a crewcut for the banks, and the full 440bn in the EFSF, will be peeing into a Tsunami once Iberia and Italia go under. So you could say it is incredibly ironic that the man who runs the Italian Central Bank now, Mario Draghi, will be the man in charge at the ECB when the final ‘plan’ is unveiled by the German and French leaders during that last weekend of October. Or you could say that this will make things infinitely more simple to arrange….what with Tricky Trichet being out of the way, an’ all. Hold that thought.
There is no ‘Grand Plan’, the details of which we cannot as yet see for we are mere mortals. Sarkozy and Merkel are as far apart on the issue of recapitalisation and Greek default as they ever were. But the French leader has, I understand, been told ‘NO’ on the subject of access to the EFSF for helping French banks. He has also accepted this – and his acceptance has gone into the diplomatic record. That much I can guarantee. It’s not much, but hey – in this hall of mirrors, it’s something.
So Nicolas is staring at a fiscal disaster, against the backdrop of falling poll scores that make him the certain loser in next year’s Presidential election. As luck would have it, however, the Elysee Palace had the opportunity to experience a sort of dry run over the last ten days, as the Franco-Belgian bank Dexia had to be rescued. I am told that a major lesson in containing losses – flog off the non-core, non-retail parts to the carpet-baggers, and retain the street presence – has been learned.
“It was a learning curve, no doubt about that,” said a senior business source in the French capital, “But you have to remember this was a tiny flea-bite of irritation compared to one of the big boys being blown over.”
Indeed. Rarely has so much been at stake for France. If we’re honest, in fact, not since the 1950s Algerian crisis – and probably not since 1940. The country is pretty much alone at the moment: the Americans are backing Germany to wind up running the show, and the Germans themselves – as The Slog reported here months ago – decided this year that 2011 is 66 years after 1945, so enough with the guilt, already. Very few French citizens appreciate just how artificially high their standard of living is, and what an enormous price Germany has paid to maintain the peace in Europe.
But in a way, precisely the same is true of Germany. With the benefit of a euro far cheaper than any Mark would ever be, Angela Merkel and Wolfgang Schauble know they too have become the world’s leading exporter by helping to create the eurozone. This is a powerful enough reason on its own to keep the euro, and the biggest consideration in Schauble’s mind as he continues to try and keep alive the idea of Greece defaulting within the eurozone. Yet again, we see Berlin and Athens on the same side here: a massively discounted and orderly default that gave them breathing space without selling off all the family silver would be a superb result for the Greeks…..and leave the Bundesrepublik looking like the credible, controlling force to investors in future.
For once, the phrase ‘everything to play for’ is not an exaggeration. So rumours of secret negotiations, pacts and gigantic fiscal fiddles are bound to be rife. And they certainly are at the moment.
“The puzzling thing for many people,” began a senior credit player yesterday, “is why the Germans don’t just cut the rope on Greece, leave France to face the music right now, and then pick up the pieces a while down the road….although in a single market, destroying your neighbours’ ability to consume is bad for business. But even taking all that into account, there is definitely a conspiratorial feeling in the air. You hear lots of gossip about offstage diplomacy”.
“Christine Lagarde is wearing at least two hats right now,” insists an American source close to the IMF. “She knows her country is in the mire, she is smart enough to know that pushing Greece too far will turn unpleasant, and to be honest I think even she has been shocked by the heat from Berlin. I hear lots of weird stuff about her and Sarkozy. Sarko is hanging by a thread here, and she is a political ally. Every avenue is being explored beyond the Troika itself to sort out a deal”.
The only certain truth is that confusion is rife, and lots of behind the scenes moves are being made. One mover above all, however, features persistently in the speculation: Mario Draghi. As ever, the Slog’s Frankfurt ‘Maulwurse’ sheds some light on the matter:
“Merkel and Sarkozy have delayed everything in order to give Mario time to find his feet,” said the one person I’ve found in the EU to date who seems able to clarify, and be willing to speak freely off the record. “As you observe, they have no grand plan. But Merkel is very, very impressed with Mario. And Sarkozy likes him well enough too. Jean-Claude Trichet is still pottering about in the foreground, but Draghi is a whirlwind behind the scenes. I have no doubt that he is seeking Big Bertha [a massive German field gun from the First World War]. We have a Tarp [toxic assets flushing] idea on the table, but somebody needs to load the shell and fire it. This will be Draghi’s job.”
Across the Pond then for a second (New York banker) view of Mario Draghi:
“Draghi is ex Goldman Sachs. The man has spent the last five years dealing with Berlusconi for God’s sake. And you have to be real about this: he has seen enormous malfeasance taking place on his watch. But technically, and in terms of dynamism, you can’t fault the guy. If the EU has any last chances left, then one could be Draghi.”
Others call the Italian ‘quiet’ and ‘thoughtful’, but also pay tribute to his ability to woo the markets. One informant told me, “He’ll slash rates on Day One”. If ever some markets needed wooing by a man of action in the EU, it’s now.