God knows how they did it, but the good burghers of the EU appear to have pulled off a miracle — they’ve timed the collapse of the euro to coincide with the European Cup, thus performing the rare double-blinder.
We have all stopped paying attention to Europe, because we are too busy talking about Europe — Italy’s defence versus Spain’s free-flowing style, Germany’s cheerless efficiency — and so the thing itself becomes the distraction. The Euro ’12 final is on Sunday; a lot of people think there’s less time than that to rescue the single currency.
George Soros is the most prominent among them, declaiming in an interview that there are “three days to save the euro”. Pointing to the spiralling costs of Spanish and Italian debt — with the former’s 10-year bonds staying north of 7% for some days last week — Soros argues for the creation of a European Fiscal Authority, the issuing of eurobonds as a swap for sovereign debt, given a zero risk weighting, and yielding about 0.75%-1%. Soros argues that there is about €700 billion of unplaced central bank funds currently earning 0.25%, which would then move to eurobonds.
Soros’ suggestions, contained in a paper to the ECB, came as Spain finally bit the bullet and formalised its request for a €100 billion bank bailout — virtually simultaneously with Cyprus, whose economy has been knocked about by the Greek collapse. Cyprus is the fifth country to need a bailout, a fresh round might be required by Portugal, and Greece is unlikely to make the deficit targets set for it. Should Italy — with debt at 120% of GDP and yields currently at 6% — tip further into a danger zone, then something will have to happen very quickly. All that has kept Italy back from the brink is that its banking system was left so unreformed that an explosion of funny money derivatives proved impossible.
Spain and Italy now occupy the attention of European financial officers — who meet on June 28 — to such an exclusive degree that everyone has quietly written off Greece entirely. But there is no indication of any strong political will to enact the sort of institutional changes that Soros and others have been suggesting. Though the election of Francois Hollande has broken the “Merkozy” alliance that kept such a stranglehold on responding to the crisis, Angela Merkel can still block any sort of comprehensive program.
The prospect of a failure to resolve the crisis has left speculation running wild, with new scenarios for a eurozone break-up being advanced other than the standard “Grexit” — Greek exit. These have been joined by a “Spanic”, a “Quitaly” and finally a “Fixit” — or Finland exit, which would be the first healthy economy to leave the zone.
The failure of the EU to come to grips with this crisis is instructive in some ways, for it’s occurred at the same time as the Rio+20 summit, dedicated to furthering the inaction on global climate change. Climate change is happening slowly (by comparison); the euro crisis is happening in real time, and it’s possible to observe the direct consequences of a failure of collective action. As Paul Krugman has noted, this is less a replay of the stagnation of 1937 — as is often suggested — than 1931 when the European banking system collapsed, embedding the Great Depression in the 1930s.
But there is a strange unreality to the process, now that Greece has been dealt out, and tear gas and baton charges no longer attend every shift in the eurozone economy. But even though there was a genuine alignment of political will, there is an obscure tripwire that might make everything impossible. That is the possibility that German courts may declare part of the current bailout process — a series of obscure loans through the ELA (European Lending Authority), which have kept Greek and Spanish banks afloat — unconstitutional. Should that occur, then a banking run and collapse may prove unstoppable.
It’s curious how it all feels around the joint — but I’m sure we’ll come to our senses once the final whistle sounds. They think it’s all over. It is now.
Guy
Whilst I enjoy the breezy link you’re making between Euro-crisis and Euro-2012, can you please try to get it right?
Yesterday you called the Eng-Ita game “evenly matched”. 35 shots to 9 says otherwise.
And today, Spain has a “free-flowing style” while Germany is “cheerlessly efficient”. Those comparisons are exactly the wrong way round.
Cheers.
kristian
well, a 0-0 game is evenly matched by definition, at one basic level…as for the other stuff, well, yeah i was just going on national stereotypes. who has a clue?
& your own personal tips Guy?
Both in The Euro Final & The Final of the Euro! ;D