More break than make on Day One

Last Saturday, German Finance Minister Wolfgang Schauble ran a kack-handed plan for debt reduction up the media flagpole. Not many people saluted it, but then Saturday does tend to be a slow day. A piece of pure Janet & John housekeeping, the basic suggestion was that the 17 eurozone States (or anyone else among the other 10 who cared to join in) should take all of their debt that was above 60% of gdp, and tell the citizens to pay it back in taxes. Can you really imagine a politician buying into that one?

Reuters reported it, I admit to having skimmed and then skipped it. It felt like another Schauble dodge to keep everyone (a) convinced there were lots of options and (b) confused as hell. But earlier today I became concerned, having seen an entry at Zero Hedge quoting unnamed sources as suggesting Wolfie intends ‘to present the plan at a crunch summit of EU leaders on 9 Dec’. As the ZH piece seemed entirely sound on the 6-central-banks-liquidity stunt, I immediately gave the story some credence.

After some brief initial digging, further news has since been forthcoming from Brussels and Paris. This tends to confirm both my worries, and the ZH line.

A relatively junior (but usually reliable) Brussels source has given me a rushed, almost panicky, account of what – from the Sprout viewpoint – looks like something of a disaster for Wolfgang Schauble’s disguised forgiveness plans. The gist of the conversation – which had to be ended abruptly – was that in a lone meeting with Chancellor Merkel, the good news for Wolfie was, she thought the guaranteed 60% debt cap in future for the eurozone was a terrific idea; the bad news is that Geli had to be revived with cordite fumes after being given even a watered-down version of the Schauble-Paris-Brussels plan. [For new readers, this was – very briefly – a scheme to use the IMF, the ECB, and EU citizens to write off a proportion of ClubMed’s debts and cancel all bank haircuts in return for much stricter banking regulations from here on.]

In Paris, there is even deeper gloom. The quote there, however, was more succinct and lucid:

“The problem we have with the Germans is that there is more than one Germany, and it is never entirely clear which one we’re dealing with. But the news from Berlin is that the Chancellor wants everyone to take responsibility for their actions. Forgiveness is not on the agenda: so we are as far apart as ever”.

Whether this means we’re back to Square One (or have merely slipped down a short snake) is impossible to read as of 16:45 GMT. My guess is that Angela Merkel believes the simplicity of her plan – a dash for Fiskalintegration via Treaty Change followed by a Sovereign eurobond – is the only answer. And thus Schauble has been ordered to present his 60% cap proposal as part of this market-reassurance package.

I doubt very severely if the markets will be reassured enough. More to the point over the next 48 hours, I really don’t see how Sarkozy can sell the German leader’s plan to his own national constituency. And in the background, Mario Draghi at the ECB waits for the signal he needs (about agreement on concrete steps and proposals) before giving a green light to the EU Central Bank piling in on a broader basis.

My gut feel is that this is a terrible start to the proceedings. As for the UK’s interests in this atmosphere, anyone thinking that Camerlot has an ant’s chance in a hungry ant-eater’s reunion of getting anything substantive from this must be certifiable.