Germany sticks against easy EFSF access, Mario Draghi now the key player
Last night in Frankfurt was meant to be a glittering reception for EU Central Bank chief Jean-Claude Trichet, on the occasion of his much-welcomed retirement. But at the last minute, French President Nicolas Sarkozy flew to the banking capital, crashed the event, and went into a huddle with Angela Merkel, Christine Lagarde, and Mario Draghi – Trichet’s successor at the ECB.
Sources in Paris told The Slog late last night that French finance minister Francois Baroin met with Sarkozy, and both men decided their diplomats were getting in the way. Immediately, the latter man cast off the spin and briefings of recent days to announce bluntly, “The talks are stuck”.
They are stuck, in reality, at the place they were always going to be stuck: the exact role of the EFSF, and France’s increasingly desperate attempts to get her hands on it. The French – about to face a wave of Greek-exposed bank collapses – want the EFSF to be a first line of bailout, with unlimited credit lines into the ECB. This would be akin to giving the French and large shovel, and then opening the ECB’s vaults with the cry, “Help yourself”.
The Germans, as ever, are saying the EFSF is a last backstop after all other sources of money have been exhausted…and should not under any circumstances have access to ECB funds. As you can imagine, Monsieur Trichet in particular is keen to squash any idea of this happening.
Now we’re down to the post-bollocks, short strokes phase of meltdown, it is becoming increasingly obvious that Germany – in an altogether stronger position (or so it thinks) – wants to do the responsible thing; whereas France just wants to get out of the quicksand….and if, in a vain attempt to achieve that, then the horse, wagon, nearest tree and the planet get sucked in too, so be it.
And in this context – as The Slog predicted nine days ago – a great deal of eddying water will boil down to how the new ECB Chief, Mario Draghi, feels about things.
“There is some conjecture that Draghi has had this brief for weeks,” a senior Swiss-based credit manager told me yesterday, “But then there’s speculation about everything. I hope he is working on it, because nobody else seems to be.”
There will, naturally, be a cobbling together in some form of compromise, whereby France has access to reverse-traded future derivatives in Shanghai which are then recycled via Beijing Bonds into US Fed Treasury Bills in order to enable Ben Bernanke to throw some more money at somebody or other, but I’m past caring to be honest. Silly fantasies aside, European central banks have been dumping T-Bills and gathering cash for weeks in a late attempt to meet the EU’s new recap ideas – so they at least know what’s coming.
And then, on Sunday, it will be hailed as The New Dawn, all friends again, everything solved. And the face to be watching will be that of Mario Draghi….but you’ll have to look carefully, because this gentleman plays every last card close to his chest.
Bet quote of the crisis so far, I think, is this one from yesterday afternoon:
“Many expect to be underwhelmed at the weekend,” David Mackie, chief European economist at JPMorgan Chase & Co. (JPM), said in an interview. “If they haven’t settled the leverage issue, then the sense of being underwhelmed will be overwhelming.”
The Slog, however, will be in another EU country about to go bankrupt. I’m taking a week’s break, and will only post of something strikes me as especially mad, funny, important or secret.