Thursday, 10 November 2011

Euro crash or rescue?

We have gone from a crisis in the eurozone to a crisis of the euro area and currency.

A stark warning from The Economist. According to the the Free exchange blog, the eurozone is in a death spiral. Only a guarantee for sovereign debt from the European Central Bank and a major commitment from the core economies to bail out the periphery, plus substantial labour market, public-sector, and tax reforms in the weak economies, can prevent financial collapse and break-up.

The United States, China, Russia, the United Kingdom and others have told the eurozone to put its house in order before they put fresh money on the table.

Germany and France

The German chancellor Angela Merkel and the French president Nicolas Sarkozy have claimed leadership of the eurozone, bilaterally, through the new eurozone summit structure recently endorsed (point 7) and the Frankfurt group.

Merkel and Sarkozy are thus the ones to judge on the outcomes at eurozone level, including how they approach new responsibilities for the ECB.

According to Reuters UK, Merkel and Sarkozy are preparing for something else: a retrenched, core country eurozone heading toward deeper economic integration, including on tax and fiscal policy.

Multi-speed Europe?

Splitting the euro area would mean the emergence of an increasingly multi-speed Europe: 1) the core euro area, 2) the dropouts, 3) the prospective entrants (Sweden?), 4) Denmark and the United Kingdom with opt-outs, as well as 5) countries joining the European Union at some point.

EU Treaty changes need the agreement and ratification of all member states, hardly a piece of cake. There are no indications of democratic government at the level of such a core eurozone (outside EU structures), but the more monumental a question, the less transparency and good governance are in evidence.

Paradoxically, where intergovernmentalism has failed, Merkel and Sarkozy seem to contemplate more of the same.

Second update 10 November 2011: Ulrike Guérot of the ECFR writes about the stubborn refusal to advance on the road of European democracy and legitimacy: Germany in Europe: the politics of disintegration.

The Wall Street Pit discusses the Franco-German plans, putting emphasis on if the European Central Bank will act to prevent meltdown in Greece and Italy or concentrate on curtailing losses.

The governance conundrum would became even more tangled, already comprising: The so called market forces, the individual EU member states, Angela Merkel and Nicolas Sarkozy who have claimed leadership, the Frankfurt group, the Euro Group (17 or less) and chairman Jean-Claude Juncker, the euro summits (17or less) and president Herman Van Rompuy, the Ecofin Council (all 27 member states) and the Council presidency (Poland), the European Council (27) and president Herman Van Rompuy, the European Central Bank and president Mario Draghi, the European Commission through president José Manuel Barroso and Ecfin commissioner Olli Rehn, the G20 and its members, and the IMF.

Update 10 November 2011): More thoughts on the subject are offered by Charlemagne's notbook (The Economist) in: Two-speed Europe, or two Europes? - Let me add that president Sarkozy has shown that he does not understand the intrinsically democrativc nature of ”federalism”.

Greece and Italy have been very much parts of the problem these last days, because they have lost the trust of markets and politicians.


According to BBC News Europe, the discussions to form a government of national unity keep rumbling on in Greece.


By yesterday Italian state bonds had become ruinously expensive, but according to Reuters there are some signs that the parliament would pass emergency legislation within the next days and that prime minister Silvio Berlusconi would make way for a government of national unity, headed by Mario Monti.

If Greece and Italy fail, the crash of the euro may take down other countries as well.

Ralf Grahn