In Europe, everybody seemed
eager to get his 2 cents in as the crisis once again intensified.
Alexis Tsipras again promised his
followers the impossible – namely that he alone could square the circle
and deliver both more spending by the government by 'canceling the bailout' and let
Greece retain the euro – whereby it should be noted that no-one can be 100%
sure if he will or won't be able to blackmail the rest of the euro-group, but
our guess remains that the answer is actually no.
If he stops hewing to the bailout conditions unilaterally, he can probably at best hope to be able to negotiate the precise conditions of Greece's exit. Note that it is certainly true that Greece remains as bankrupt as it was prior to the 'PSI' deal. However, recognizing this fact is one thing, while SYRIZA's political program is quite another. Let us not forget that it isn't the 'Coalition of the Radical Left' for nothing – nomen est omen in this case.
Meanwhile, Spain's finance
minister de Guindos (the first Spanish minister of finance who has attained
such a degree of international fame and recognition) insisted that Spain and Italy are the
battleground on which the
euro's fate is going to be decided. This is no doubt correct. Bloomberg reports
that the IMF saw fit to deny that it is getting in on the act as the extent of
recent capital flight from Spain came to light:
“Spanish Economy Minister Luis de Guindos said the euro’s future will be played out in the coming weeks in Italy and Spain, as data showed record levels of capital leaving his country.
“I don’t know if we’re on the edge of the precipice, but we’re in a very, very, very difficult situation,” he told a conference in Sitges, Spain, yesterday. Spain and Italy are where the “battle for the euro” is being fought, he said.
The International Monetary Fund denied that it was preparing financial aid for Spain, as data yesterday showed that 66.2 billion euros ($81.8 billion) of net capital flows left the country in March.
Spain is at the crux of the debt crisis now in its third year as Prime Minister Mariano Rajoy’s government tries to shore up the country’s banks amid a recession and the highest unemployment in Europe. The crisis has exposed the disparities in the 17-nation euro region’s economy, with Spain’s extra borrowing costs over Germany’s rising to the highest in the euro’s history this week.” (emphasis added)
March was an eternity ago in
financial market terms. How much more capital has fled since then? This doesn't
sound very reassuring, that much is certain.
Speaking of Italy, Uncle Silvio is apparently still among the living –
and he's talking to the press too. A friend referred to him as 'Burlesquoni'
upon hearing of his latest proposal. He has discovered how to save Italy from
Monti's austerity regime: simple, print money! And having correctly
identified Germany as standing in the way of this grandiose idea, he
recommended it should simply leave the currency union (which it eventually
actually might).
“Italy should start printing fresh euros and Germany should leave the currency union, former Italian Prime Minister Silvio Berlusconi said Friday, MF-Dow Jones reported.
"Here's my crazy idea; Let's start printing euros ourselves," Mr Berlusconi told an assembly of his center-right People of Liberty party's parliamentary deputies.
"Germany should leave the euro if it doesn't agree with the European Central Bank serving as a lender of last resort," he added, MF-Dow Jones said. If the ECB doesn't take on that role, Germany's role in Europe should be reviewed, he said.
Mr Berlusconi resigned last November to make way for a technocrat government led by former European commissioner Mario Monti. Senior officials in government and at Italy's central bank have since said the country risked being unable to pay state employees due to trouble issuing sovereign debt.
While no longer in power, Mr Berlusconi remains the founding leader of the party with the most parliamentary seats and hence his support for Mr Monti's government is considered crucial. The current legislature is due to end in the spring of 2013.
Mr Berlusconi said he had no intention of being a candidate for prime minister or the head of state but that he was "at the service of his party as a coach."
Mr Berlusconi, owner of the AC Milan soccer team, has long called for the ECB to serve as a lender of last resort, shorthand for urging it to buy government debt when private investors will not. Last summer he sought policy help from the ECB but was surprised to receive in exchange a letter from the central bank demanding that Italy speed up its budget consolidation, push through tough pension reforms and make it easier for companies to fire employees” (emphasis added)
Now he's sniping from the
sidelines, but it's probably a shrewd move from a political perspective. Let's
call it early electioneering and a reminder to Monti as to who's who in the
zoo.
The next Italian to lob a few verbal
hand grenades into the proceedings was Mario Draghi, in his speech to the
European parliament. In fact, both Marios criticized Germany, executing a kind
of double-Mario tackle.
German Chancellor Angela Merkel was besieged by critics for letting the euro crisis smolder, with the leaders of Italy and the European Central Bank demanding bolder steps to stabilize the 17-nation economy.
Italian Prime Minister Mario Monti and ECB President Mario Draghi pushed Germany to give up its opposition to direct euro- area aid for struggling banks. Monti further antagonized Germany by urging a roadmap to common borrowing. […]
Draghi told a European Parliament committee in Brussels that without more aggressive action by policy makers the euro “is being shown now to be unsustainable unless further steps are being undertaken.”
He said it wasn’t his job to make up for the failures of policy makers. “It’s not our duty, it’s not in our mandate” to “fill the vacuum left by the lack of action by national governments on the fiscal front,” on “the structural front, and on the governance front,” he said. (emphasis added)
Meanwhile, the Ostrogoth hordes decided
to let leniency prevail in the case of Spain's ever more
fantastic looking deficit target. As Henry the Fifth already knew, “when
lenity and cruelty play for a kingdom, the gentler gamester is the soonest
winner”.
Besides, what else can they
do?
“The German government shifted ground on Friday, supporting a European Commission proposal to give Spain more time to reduce its budget deficit, in a sign Berlin is prepared to take a more flexible approach to tackling the euro debt crisis.
The European Commission called this week for Spain to be given an extra year to make the cuts demanded of it, because it is forecast to be in recession this year and next. Until now, Berlin has been cool to any measures that dilute austerity drives.
"Spain presented a stability programme in which it stated its clear intention to reach the 3 percent threshold in 2013," German finance ministry spokesman Johannes Blankenheim told a news conference when asked about the Commission proposal.
"We support Spain in its efforts to implement the necessary measures. But we also recognise that because of negative economic developments it will be difficult for Spain to reach its goals."
Asked if this meant that he supported giving Spain more time, he replied: "I think that's what I've been saying." (emphasis added)
Der Spiegel reported that even in far-away Washington, in the hallowed halls of the World
Bank, the sense of panic was growing ever so slightly. This report had also
more complete data on deposit money flight from Spain, showing an unhealthy
progression. There was also a little more color on the Mario double-tackle.
“Is it time for Europe to break the glass and pull the alarm? World Bank chief Robert Zoellick certainly thinks so. In an editorial for the Friday edition of the Financial Times, Zoellick wrote that "while those living in the euro-zone building, especially those on the executive floors, will not want to hear an alarm, they had best read the instructions. Events in Greece could trigger financial fright in Spain, Italy and across the euro zone, pushing Europe into a danger zone."
Such sentiments about the dangers currently facing the European common currency are hardly new. But this week, concern at the highest levels appears to be slowly morphing into panic. Several senior European leaders have urged speedy action to prevent the situation in Greece and Spain from spiralling out of control — amid increasing indications that that is exactly what might be happening.
European Central Bank head Mario Draghi provided what was perhaps the most urgent appeal to euro-zone political leaders on Thursday in comments delivered to the European Parliament in Brussels. He said the structure of the euro as it stands now is "unsustainable unless further steps are taken" and also criticized European heads of state and government for not being clear about their common currency strategy. Leaders, he said, "must clarify what is the vision … what is the euro going to look like a certain number of years from now?" Draghi also said that the ECB was unable to save the euro on its own and could not "fill the vacuum of the lack of action by national governments."
Italian Prime Minister Mario Monti also got into the act on Thursday by demanding that the euro backstop fund, the European Stability Mechanism (ESM), be allowed to provide fresh capital directly to struggling European banks, a move that Germany has strictly opposed thus far. In a video-taped presentation for a conference in Brussels, Monti challenged Berlin to "think deeply yet quickly" about further instruments to combat the crisis facing Europe's currency. The focus of such cogitation, he said, should be the Continent's banks.
The most immediate cause of concern this week is Spain. The country's central bank on Thursday released data indicating that some €97 billion — equivalent to 10 percent of the country's gross domestic product — had been pulled out of the country in the first three months of 2012 as people seek safer places for their money. Fully €66.2 billion fled the country in March alone, double the December figure, which had been a record to that point.” (emphasis added)
Read the instruction manual?
Not at too leisurely a pace, one hopes. As to what the euro will look like in a
few years, the following image immediately suggested itself to us:
So outflows from Spain have
basically gone 'parabolic' between January and March. No wonder then that the
TARGET-2 liabilities on the books of the Bank of Spain have shot up especially
sharply since the beginning of the year.
Finally, at least one eurocrat decided
he had to take serious steps to save the currency. None other than Olli Rehn entered the fray with a
dire warning crossing his lips.
Given the fact that he's the world's most reliable contrary indicator, he may
have singlehandedly saved the euro by choosing this moment to speak up:
“The 17-nation euro area is in real danger of disintegrating unless policy makers revamp the bloc’s fiscal and economic ties, Economic and Monetary Commissioner Olli Rehn said.
“The way things are going and under the current structures, the euro area has a significant risk of breaking up,” Rehn said in a speech at a European Commission event in Helsinki. “We’re either headed for a deterioration of the euro area or a gradual strengthening of the European Union.” (emphasis added)
We're saved!
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