This afternoon, European Central Bank (ECB) boss Mario Draghi said he would be prepared to broaden the role of his bank to encompass more and bigger bond purchases. Tomorrow, Angela Merkel will address the Bundestag to say she wouldn’t. This evening in Toulon, as I write, Nicolas Sarkozy is explaining to the French why he is the man to steer the country through the crisis.
Merkel is likely to say that the eurozone needs massive and immediate fiscal integration first – and only then, several responsibility for debt via eurobonds. Draghi would like far more action on austerity plans now, and then movement towards integration soon afterwards. Nobody knows for certain what Sarko will say. It’s highly likely that he doesn’t know himself.
What Sarkozy would like to say is that Draghi’s ECB should buy up every junk bond on the continent, and give money directly to prop banks up. This is because, being slick but thick, Nico doesn’t understand EU central banking law: the principle of all central banks is, when necessary, to create liquidity – not to bail out insolvency. But then, President Sarkozy has five almost insolvent banks, so he’d be happy to ignore the legal finesses involved. Sadly for him, he will be found dead in a ditch somewhere if he raises the topic again.
So there we have them: three points of a compass that have been with us right from the start of the debt crisis. Not surprisingly, both the markets and the Americans (as I was at pains to point out yesterday, these two are not mutually exclusive) cannot get a steer on how these views might converge….if at all. But as is becoming more clear with every day, the fourth point is now being represented by German finance minister Wolfgang Schauble.
Two days ago, Schauble suggested that the EFSF + bazooka idea was “too intricate for investors to understand”. It was also not doing any of the rather necessary leveraging thing. Herr Doktor Schauble was making an important here: he said – between even more lines than usual – “Let’s stop kidding ourselves: talk is cheap, and that’s all we’ve had from investors to date. The bazooka is empty. We need a Big Idea now, or we’re all dead meat”.
I’ve asked several German acquaintances how they think Wolfgang copes with his Chancellor on the one hand, and the likes of Van Rompuy on the same hand, with Sarko and Barroso hanging onto the remaining fingers on this same, crowded hand for dear life. Because the only person with Frau Doktor Merkel on the other hand is Mario Draghi – and tomorrow she looks set to rein him in as well.
If anyone does know what the relationship consists of, they’re not telling anyone of my acquaintance. Perhaps they don’t tell anyone at all. Maybe they don’t talk, but just send the odd email or tweet. Whatever the reality, Wolfie and his pals in Paris and Brussels must be praying that he can drag Geli into the loop, without her snipping it after a day or two in order to go walkabout, while muttering about lazy Greeks and flea-bitten Spanish donkeys.
The Schauble Plan, I can tell you, is still very much intact. To catch up on what it is, see this post from yesterday.