I didn’t think it was possible, but my confidence in the ability of European policymakers to pull the Continent out of crisis continues to fall. This is saying a lot because I had virtually no confidence to begin with.
Consider where we are at today. Greece once again is making the headlines, as it is increasingly evident that they have made virtually no progress on the last bailout package, and will therefore need another. This should have come as no surprise; it was increasingly politically impossible to engage in additional austerity with the Greek economy plummeting into the abyss. But bailout fatigue will finally hit this time, as there appears to be no more appetite to limp Greece along. Evan Ambrose-Pritchard argues that Germany is leading the drive to finally force Greece out of the Eurozone. Ambrose rightly places at least some, if not the lion’s share, of the blame for this outcome at the feet of the Troika:
This was entirely predictable – and was predicted by many critics – since Greece faced an IMF-style austerity package without the usual IMF cure of devaluation. The Troika’s ideology of “expansionary fiscal contraction” – which the IMF has to its credit since abjured, but the fanatics in charge still swear by – is breaking a whole society on the wheel.
The Greeks were never given a bailout plan that had any hope of success. And they deserved such a bailout, given the rest of Europe’s culpability in this crisis for letting Greece into the Euro in the first place.
Whether or not Greece can be forced from the Euro with little impact elsewhere remains to be seen. I doubt we will need to wait much longer to learn the outcome of Grexit. But the devastating train that is the debt crisis keeps rolling right along, currently crashing through Spain’s economy.
And make no mistake, European policymakers have learned nothing from the Greek experience. One gets the sense that policymakers think the prescription was correct, but that the patient was simply unwilling to take the medicine. Where Greece failed, Spain will succeed, or at least so it is hoped. Indeed, today Spanish Finance Minister Luis de Guindos met with his German counterpart, and the FT reports:
Germany on Tuesday threw its considerable weight behind the reform and austerity programme of the Spanish government, in the face of a continuing surge in the cost of borrowing for Madrid, and strong protests against its spending cuts.
Spain is doing the right thing, apparently. It’s just the markets that have it all wrong:
A joint statement by Wolfgang Schäuble, German finance minister, and Luis de Guindos, Spanish economy minister, condemned the high interest rates demanded for the sale of Spanish bonds as failing to reflect “the fundamentals of the Spanish economy, its growth potential and the sustainability of its public debt”.
The truth is exactly the opposite – market participants have looked at Spain’s fiscal and economic situation, including the issue of provincial bailouts, and concluded that another sovereign bailout is coming, complete with private sector involvement. The “voluntary” kind of involvement, of course. And in return for this bailout, Spain will be pushed further down the same path of never ending recession as Greece. Because if once you don’t succeed, try, try again. European policymakers will pursue the same path because they know of no other:
But after talks in Berlin last night on the eurozone crisis, the two gave no hint of any new initiatives to try to calm the markets, or prevent contagion from Spain affecting any other members of the eurozone, such as Italy.
This comes as Spanish 10 year yields hit 7.62% and the Italian equivalent lurches up to 6.60%. And unbelievably, the ECB is apparently out of the game, no longer willing to buy sovereign debt either to avoid being a victim of “public sector bailout” or because they believe that restrictions against monetizing the debt of member states trump imminent financial collapse. Meanwhile, the crisis is increasingly bleeding through to the supposedly immune German economy, with the Markit PMI continuing to fall. The deeper Europe slides into recession, the harder it will be to find solutions.
And it is already almost near impossible to find solutions, a fact proved by the seemingly pointless European summits that always seem to come too late and offer too little.
Yet despite what is obviously clear and present danger to the Eurozone project, and, more importantly than the project, but to the economy on which millions depend for their livelihood, there doesn’t seem to be any panic in official circles. No sense that policies need to be fundamentally reassessed. No sense that time is of the essence. No one is even bothering to leak unsubstantiated and false rumors of some “Grand Plan” in the works.
In my view, the lack of panic is downright scary. Is Europe completely devoid of new ideas? Or is everyone simply on vacation?
Bottom Line: Still a Euroskeptic, and an increasingly pessimistic one at that. I really, really want to believe that Europe will quickly coalesce around a solution to the crisis, and I hope to see a move in that direction soon. At a minimum, the ECB should throw in the towel and backstop sovereign debt. But all I see are the same failed policies again and again. Worse, no one is running for the panic button. Maybe there isn’t a panic button; I guess it was another piece of the necessary institutional framework forgotten during the creation of the Euro.
This post originally appeared at Tim Duy’s Fed Watch and is posted with permission.
7 Responses to “Is There Even a Panic Button in Europe?”
There is a complete lack of understanding of the situation coupled with the fact that we are now in holiday season. Nothing disturbs the Eurocrats holiday – even the impending euro disaster! The end of August will see a new Summit where it will be declared by Rumpey Pumpy, Merkel et al that they have a new plan….
Groundhog Day! The same happened last year if you recall.
The collapse will come; just be patient!!
absolutly right . i think this situation looks like hide deal with the EU if NOT GR play up in economy others countrys ..EUZ because is ready 2 year in Great Depression and every 3 -6 month change one minister or the GV now half of GR WAS minister of eco-finance AND NOONE FINE OR DO THE RIGHT WORK HAVE TO DO and you know why/ because they play ..they waitng for some thing happening in EUZ and together with this winn GR ..I AM VERY DESAPPONTET WITH LEADERS euz BECAUS LEFT THE SITUATION LIKE THIS NOW eu DOSENT NEEDED HELP FROM NOONE OR IMF BECOES IS ONE CONTINENT WITH RICH ERTH AND HIGHE EDUCATION SO WHERE IE WRONG BAD POLITICE ..SO FINDE NOW…(I DONT THIK SO WORKING GOOD NEEDED GOOD DISSIPLINE EU DOESNT HAVE )YOU GIVE A FINGER TO THE GR SHE TAKE ALL YOUR HAND ..NICE EH ..SPAIN TOO ..IT TOO DIFFRENT IS IRLAND
"Confounded Interest" indeed. The bottom line is "fatigue wins." If you have any solutions….that are workable within the context of "merely the entire Continent of Europe" i'm sure they're all ears. I would argue a more productive use of your time however is to imagine what the Fed and Treasury Department's response would/should be once the EZ collapses…which is well underway i might add. And more importantly "will the response work?"
Where Greece is today, Spain will be in a year from now and Italy in two years (max). And if Greece exits, expect the avalanche to trigger the exits of spain and italy much faster. Greece has been very very hard hit with austerity. almost half of private businesses have closed down. The austerity recipe was a bad bad idea that didnt work. and the paranoic thing is, that Germany wants to enforce the same recipe everywhere else in europe.
Basically right now they are forcing Greece to the exit without realizing the avalanche that the grexit will create for Spain and then Italy.
Good luck with that!
Europe is on the path of destruction. Maybe the Germans have figured out that they want a small "core-europe" with 6-7 (manageable) nations and the rest can go. The rest can become little "euro-chinas" working and producing for Germany with peanuts-salaries in drachmas, liretas or pesos. For starters, Greece is a prime real estate piece that can be bought for nothing if they return to the drachma.
The idea of a "united" europe is deteriorating RAPIDLY. Give it a coupla years and you will see.
Why do we need to 'give it a couple of years'? We see it already.
We do see it, but give it some time and you ll see in what extent it will start to break apart (economically, socially and politically).
Unless of course, euro leaders start to do something about it.
But who are we kidding? We re talkin about (arteriosclerotic) europe here…
When the boat starts taking water inside, its going to be "every nation for itself".