Friday, October 19, 2012

EU summit meets, Merkel and Hollande quibble, summit decides to stall

The EU summits have in one sense gotten monotonous: the heads of government meet, palliative measures get discussed that would postpone the collapse of the eurozone without solving the problems of the currency union, and Germany tries to minimize the scope of anything that gets agreed upon. Wait a few weeks, rinse, repeat.

It has become not unusual for new acute signs of crisis to appear within days of the summits because they throw cold water on the hopes of optimists that this time might be different.

German Chancellor Angela "Frau Fritz" Merkel has previously agreed to European-level bank regulation. But ever since then she's been backing away, trying to minimize the actual scope of the proposed regulations. Now she's saying she can't see how a good regulatory structure could be in place before 2014.

The European Central Bank's (ECB) policy of buying periphery countries' bonds has allowed for a milder phase of the crisis leading up to the US Presidential election, along with other measures such as reassurances that Greece will get its next scheduled round of interest-payment support and postponing the Troika's formal report on Greece until next month.

French President François Hollande probably scored some political points back home by publicly differing from Frau Fritz on some points. But he's also opposing any rapid transition to a real fiscal and transfer union, so in the end he's reinforcing the deeply-entrenched EU habit of avoiding the core problems of the euro. Hollande embarrassed Angie this week by publicly referring to what everyone knows but by established EU diplomatic protocol they aren't supposed to say in public about each other, which is that Frau Fritz is stalling because her party has a substantial anti-Europe faction and she wants to avoid having to put new spending measures of assisting periphery euro countries through her Parliament before next year's German elections (exact date not yet set). (Nikolas Busse, EU-Gipfeltreffen: Misstöne vor dem Kompromiss FAZ 19.10.2012) Such measures are generally unpopular in Germany, not least because of her own moralistic and often small-time nationalistic expressions of judgment and resentment against the periphery countries like Greece.

It's worth noting that Frau Fritz went further than usual for German Chancellor's in openly supporting previous incumbent French President Nicolas Sarkozy against Hollande in this year's Presidential election. Payback's a bitch, as they say.

Britain, continuing its accustomed role as an uncooperative partner, is refusing to approve the EU bank oversight for Britain. Sweden is the only other member country taking the same position. Another sign in current conditions that a workable and effective EU probably can't exist for the foreseeable future with Britain as a member.

And the EU's fatal support of austerity economics in a depression continues, with Socialist Hollande right on board with that, too.

That's why his willing to publicly challenge Merkel on some points like the urgency of implementing European banking oversight can do only limited good. As long as Europe remains caught in the grip of the Merkelist austerity policies, the EU is in serious trouble.

A Guardian editorial of 10/17/2012, France and Germany: best of enemies, summarizes a report of the Bertelsmann-Stiftung on the expected consequences of a euro-collapse chain reaction. (German version here, cleverly titled "Odin's Fall": Wotans Abstieg Der Freitag 18.10.2012):

The damage that Ms Merkel's foot-dragging is causing is creeping ever closer to her country's borders. Germany's growth rate will be slightly higher than forecast in spring, but next year's will be halved to 1%. If the strongest economy in the eurozone is grinding to a crawl, it should say something. Unfortunately, Ms Merkel could be tempted by the current fragile equilibrium in the money markets to play, again, for time. Already expectations at what will be achieved at this week's summit have been downplayed. The big decisions will come in November instead. Which is perhaps why Mr Hollande launched the broadside he just has.

But just one indication of the trouble the eurozone as a whole is in, and the current risk of contagion if Greece goes belly up, is contained in a report which assesses the economic knock-on effect a Grexit would have on everyone else. According to Bertelsmann Stiftung, it would not only suck €674bn out of the world's leading economies, but if it triggered a Portuguese exit as well, global losses would add up to €2.4tn, or €2,790 for every German over eight years. If Spain left, the accumulated per capita losses would soar. If Italy followed, France would lose €2.9tn, the US €2.8tn, China €1.9tn and Germany €1.7tn by 2020. A global international crisis. So for Mr Hollande to say that we are "near, very near" to the end of the crisis is perhaps the closest he came in this interview to being blithe.
Der Freitag's version of that quote, in a translation by Zilla Hofman:

Einen Hinweis auf das Ausmaß der Probleme der Eurozone als Ganzes und das Risiko eines Dominoeffektes im Falle einer Pleite Griechenlands findet sich in einem Bericht der Bertelsmann-Stiftung. Darin werden die ökonomischen Folgen eines Grexits für andere Länder bewertet. Laut Bertelsmannstiftung würde ein solches Szenario die 42 wirtschaftlich führenden Länder der Welt 674 Milliarden Euro kosten.

Sollte ein Euroaustritt Griechenland dann noch einen Austritt Portugals auslösen, würden sich die weltweiten Verluste insgesamt über acht Jahre auf 2,4 Billionen oder 2.790 Euro für jeden Deutschen belaufen. Sollte auch noch Spanien austreten, würden die Pro-Kopf-Verluste nochmals in die Höhe schnellen. Würde dann noch Italien folgen, würde Frankreich bis zum Jahr 2020 2,9 Billionen, die USA 2,8 Billionen, China 1,9 Billionen und Deutschland 1,7 Billionen Euro verlieren.

Damit wäre eine globale Krise erreicht. Wenn Hollande sagt, wir seien dem Ende der Krise „nah, sehr nah“, dann dürfte das in diesem Interview seine optimistischste Aussage gewesen sein.
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