The galaxy maybe safe, but what about the euro? The euro zone needs a bigger Bazooka!
One would hope that if Earth were under surveillance from an alliance of alien races worrying about human plans to conquer the galaxy, that they were watching the European Union summit last week.
I suggest this because it is certain that if they watched the leaders of the 27-member union debating the euro crisis they would be reassured that decisive action is not something at the top the European agenda. The Martians can sleep easy in their beds.
There’s a pattern to this. An event, like a credit ratings agency frowning at a euro-zone member, or political instability in one of the key states, triggers the panic. All EU member states admit that yes, something must be done, and rush to Brussels, after which a statement long on declaration but short on politically achievable action is released. The markets react positively, and then we all await the next incident. If anything, it’s a signal that investing in Brussels-based hotel or catering groups is probably not a bad call.
Where’s the bazooka?
The summit held last week announced the concept of the trillion euro ($1.4 trillion) European Financial Stability Facility, the super-bazooka supposed to scare away the markets from picking at Italy, Spain, Greece, Portugal, Ireland, and to a lesser degree, France.
Yet you can’t help feeling that the EU has shown the world a very impressive photo-shopped image of the super-weapon, and when the assembled media ask to see the actual device there’s a lot of coughing, looking at shoes and “Is that a grey squirrel?” and pointing out the window. After all, who is actually putting up the hard cash for this financial Death Star? The German constitutional court is looking on, clearing its throat loudly, and France can hardly be credible if France is also one of the countries that might need help. You know you’re in trouble if you are trying to pay off your credit card with another credit card.
The summit also decided to put another €100 billion ($140 billion. Remember when that used to be a lot of money?) into European banks to provide needed capital.
But the big decision of the summit was the Greek debt default and the decision to write down, or at least harass banks into writing down, 50% of Greece’s private sector debt. Whilst it is at least a recognition of the reality of Greece’s inability to pay its debt, it is still dancing around the key issue of Greece’s inability to recover economically whilst inside a currency union completely unsuited to its needs. President Sarkozy has as much as admitted that, remarking this week that Greek entry into the euro zone had been a mistake.
But what happens if the Greek public, seemingly offered nothing but a menu of higher taxes, less public services, pay cuts and no real ideas as to how to generate significant economic growth in an overpriced (for Greece) currency, decides that enough is enough?
It should not be forgotten that both main political parties, the centre-left ruling PASOK and the centre-right New Democracy are tainted by economic mismanagement of the country. In such circumstances, it’s surely worth remembering that Greece is no stranger to military coups. How would the markets react to that? Moreover, given that Greece has been permitted to effectively default, an event opposed for the last three years, is Greek exit from the euro zone really as incredible as Europe’s leaders would have one believe?
If it were to happen, the problem then becomes how Europe stops a Greek departure from turning into a market stampede to push out the other PIIGS.
A new engine
The problem with the EU’s actions is not that they are bad choices. Instead, it’s the constant tinkering and banging on the European financial engine under the hood, and the “Rev her up now!” calls by Europe’s politicians to see if the last tightened nut is the thing that fixes the problem, especially when observers standing around know that what is really needed is a new engine that no one wants to spring for.
Having said that, the great irony of the whole European situation is the constant appearance of unintended consequences. With EU governments buffeted by a distinct cooling of enthusiasm for European integration, the summit almost casually recognized the need, within the 17-member euro zone, for greater surveillance and co-ordination of national budgets, yet another modest step towards the much-denied fiscal union.
Interestingly, British Prime Minister David Cameron had a heated exchange with Sarkozy over the French President’s objection to Britain, a non-euro zone member, demanding that the 10 non-euro zone members be involved in decision-making within the euro zone.
Cameron, a self-declared euroskeptic and opponent of further British integration into Europe, nevertheless recognizes that Britain has to be at the table, even if it objects to the table existing in the first place. But then, that’s the greatest irony of all: Britain joined the EU to oppose the creation of a united and powerful European rival to Britain emerging in Europe. Now, with his parliamentary party demanding Britain distance itself from Europe, it’s dawning on him that a powerful single economic and political entity of 330 million people is ever so slowly looming out of the fog on the English Channel towards him.
He’d probably prefer if it were actually Martians. He could at least blow them up.
(20min delay)