The Germans are briefing desperately – and claiming nonsensical futures – but they won’t be able to stay ahead of events in the eurozone.
While the US loves to use the eurozone disarray to suggest that its ‘lack of policy direction’ threatens the whole world, in fact the EU at present suffers from a serious embarrassment of riches when it comes to strategy: it’s a case of too many policies obscuring the direction.
Yesterday, The Slog tried to apply visual humour to the ridiculous (and contradictory) pressures on ECB boss Mario Draghi. Whether readers appreciated this or not, the reality is clear enough: Signor Draghi cannot obey the diktats of Berlin, Washington, the lenders and Paris without turning himself inside out – and betraying the whole point of the Euro’s central bank.
Throughout the last week, both the European Central Bank and Germany firmly rejected calls from euro-zone politicians to bail out Italy and other struggling euro members by intervening massively in bond markets, insisting that the central bank’s credibility rests on its political independence and focus on fighting inflation. How right they are.
In his first speech since taking the position this month, Draghi put the onus on euro-zone national governments to solve the crisis of confidence in the region’s public debt, criticising politicians for failing to quickly carry out their own anti-crisis measures. Where I suspect he would differ with Berlin is in its belief that only bulldozing all opposition to integration can save the Euro. He knows only too well – as also reported here yesterday – that only resorting to desperate, fraudulent measures is keeping the weaker eurobanks afloat as it is. The French banks in particular will be shown, quite soon, to have been quite outrageous in their willingness to mislead the EU’s central bank.
Mario Draghi is (by reputation and writing) a man who believes in integration’s application of financial discipline. But I doubt if he would go along with the bollocks being put about by Das MerkeSchauble. Over the last two days, Wolfgang Schauble has made an idiot of himself, racking up what he sees as pressure on the UK by ludicrously suggesting that a failure to join the euro will ruin the British. Nothing could be more calculated to increase our Parliament’s resistance to blind EU integration; but more to the point, the idea that a country (using the Pound) has only one salvation – adoption of the euro – strikes generalists and experts alike as plain daft.
“His hyperbole reflects his desperation,” a Swiss-based sovereign credit bigwig opined last night, “Sterling isn’t under anything like the pressure that the euro is. This is like suggesting that the UK too is surrounded by a Wales and Scotland mired in debt and about to go underwater. But his target audience for this sh*t is more German than British.”
This view is supported by the reality of ClubMed’s continuing – and deepening – anarchy.
Spanish banks, under pressure to cut property-backed debt, hold about 30 billion euros of property that’s “unsellable”, according to a risk adviser to Banco Santander SA (SAN) and five other lenders.
“I’m really worried about the small- and medium-sized banks whose business is 100% in Spain and based on real-estate growth,” Pablo Cantos, managing partner of Madrid-based MaC Group, said in an interview. Spanish lenders hold 308 billion euros of property loans, about half of which are “troubled,” according to the Bank of Spain. The central bank tightened rules last year to force lenders to set aside more reserves against property taken onto their books in exchange for unpaid debts – pressing them to sell assets rather than wait for the market to recover from a four-year decline. Several sources contend that Spain’s property prices could take two decades to recover.
Meanwhile, Greece’s creditors today failed to persuade the leader of New Democracy to drop his refusal to sign a pledge that he will back austerity measures under a bailout deal aimed at saving the country from fiscal meltdown. Antonis Samaras, leader of New Democracy, says there is no need to provide a written guarantee “because my word can be trusted”. Hmm: international lenders, wary of Greece’s failure to deliver on fiscal targets during the last two years, continue to insist on a written statement of intent: one can hardly blame them.
Those who laughed three months ago at The Slog’s insistence that Italy’s hidden mess was not only awful – it would spread to the Greek-exposed French banks – may now be feeling somewhat sick. But whether they appreciate how wrong they were or not, Angela Merkel in particular knows only too well how her immediate neighbours have misled her.
“This is clearly an austerity budget, as most member states are in the midst of a serious financial crisis,” said EU Budget Commissioner Janusz Lewandowski, “But there is now a serious risk that the European Commission will run out of funds in the course of next year, and will therefore not be able to honour all its financial obligations towards beneficiaries of EU funds”.
The idea that anyone in possession of a right mind might consider that any EU cause (while the Greeks sleep in the streets) should be ‘a benificiary’ beggars belief. This – and the near-certainty of both banking and sovereign ‘events’ over the next few weeks – will surely do for the frantic plans of the German tendency. Even if they don’t, the resistance of Southern Europe to technocratic demands will. And if that too doesn’t make a nonsense of Berlin’s ambition, then French banking collapse most certainly will.