Tuesday 16 August 2011

Eurozone RIP?

Is the meeting today in Paris going to be remembered as the event which set in motion the chain reaction leading to the demise of the first eurozone?

Ongoing obstruction

Already the decisions of the 21 July eurozone summit to bail out Greece a second time and to beef up the bail-out funds (EFSF, ESM) are causing cracks in the government coalition. See Financial Times Deutschland: Koalition rangelt um erweiterten Rettungsschirm (13 August 2011).

The following day, the FTD editorial sharply criticised the parliamentary delaying tactics, which could lead to the break-up of the eurozone:

Das hält diese Währungsunion nicht mehr aus. Wenn die Beschlüsse von Brüssel nicht zügig parlamentarisch umgesetzt werden, war's das. Entweder wir akzeptieren die Transferunion - oder wir schrumpeln zu einem Hartgeld-Resteuropa, das sehr viel höhere volkswirtschaftliche Kosten zu stemmen hätte, als die Ausweitung des Rettungsschirms je verursachen könnte.

Was langfristig dennoch bleibt, ist die Frage nach der demokratischen Legitimation.

See: Tempo bei der Euro-Rettung (14 August 2011).

Potential mutiny

German chancellor Angela Merkel is facing a mutiny by her coalition parties CDU-CSU and FDP, if she moves on eurobonds. The German version of EurActiv offers a detailed overview of positions taken by German politicians, as well as others: Euro-Bonds: Pro und Contra zu gemeinsamen anleihen (15 August 2011).

After stark warnings from the parties, especially the Bavarian CSU and the liberal FDP, a government spokesman stated that the eurobonds were off the agenda of Merkel's meeting today with the French president Nicolas Sarkozy. See Deutsche Welle: Berlin and Paris snub 'eurobonds' despite growing support (15 August 2011).

Empty-handed leaders

According to a press release from the chancellor's office, Merkel and Sarkozy are working on common proposals to improve working methods and crisis management in the eurozone, but what are the leaders left with, when the Germany rejects the eurobonds and takes them off the table? See: Bundeskanzlerin Merkel trifft Staatspräsident Sarkozy in Paris (15 August 2011).

Despite a brief spell of optimism on financial markets and stock exchanges, what is going to happen when the leaders of Germany and France step out empty-handed?

RFI carries the telling headline: Programme minimum pour la rencontre Sarkozy-Merkel (16 August 2011).

Even if the German and the French side have publicly swept the eurobonds off the table, Spiegel Online International still yesterday started its customary review of German editorials by saying:

The issue of euro bonds will loom large at German Chancellor Angela Merkel's crisis meeting with French President Nicolas Sarkozy on Tuesday.

On the whole, the editorialists seem more nuanced and receptive to eurobonds (at least as a necessary evil), than the leading politicians of the government parties. See: Euro Bonds 'More a Band-Aid Than a Miracle Cure' (15 August 2011).

Deutsche Welle notes that the liberal MEP Guy Verhofstadt has called for Merkel to embrace eurobonds. Everybody is talking about eurobonds, well, almost everyone (except the German and French leaders). Given the current positions, the report ends by wondering how Merkel and Sarkozy are going to profile themselves as crisis managers: Alle reden über Eurobonds – fast alle (16 August 2011).

Not going away

In The Wall Street Journal Europe, Marcus Walker notes that Berlin and Paris have dismissed the eurobonds ahead of today's meeting, but continues:

But the realization is dawning in both countries that Europe may need radical change to save its common currency.

See: Eurobond Debate Rises in Germany, France (16 August 2011)


If the national leaders are too limited or weak to launch an effective and democratic eurozone, could Merkel and Sarkozy use the press conference to enlighten us about how the dissolution of the first eurozone is going to proceed and share their thoughts about what happens after that?

Interested, among others, are 331,965,504 eurozone inhabitants.

Ralf Grahn

1 comment:

  1. I don't agree that the Greek crisis is a fatal crisis for the Eurozone. How can it be that while a debt crisis in California - a much larger and economically more pivotal region of the US than Greece is for the EU - does not adversely affect confidence in the stability of the US Dollar, a debt crisis in a small peripheral region of the Eurozone would kill the Euro?

    What this crisis is really demonstrating is that the markets dont have any confidence that Europe has a plan of action and a crisis-response mechanism in place for this sort of eventuality. Furthermore, in this line of thinking, the market would be largely correct. What response there has been from the Eu has been too-little, too-late. Meanwhile, crisis response depends on the whims of Germany. Its as if California would call Vermont and Ohio asking to be bailed out of the budget crisis. Not the smartest way to do things.

    In any case, market data shows that given the strength of the recovery of German exports, issuing their own currency now would cause a currency appreciation so dramatic that the export sector would wither and die in Germany. Since manipulating your currency is now considered "Beggar thy Neighbor" under WTO law (thanks to Germany in fact), the Germans are only too happy to keep the beggar they neighbor Eurozone in place.


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