That's not surprising. After all, there have been many previous false dawns in Europe since 2010. The big question was what the individual European leaders would say, quite notably Germany. Actually, at first, Germany had sort of pushed back against Drahii's words:
"Earlier, Germany's powerful Bundesbank pushed back against European Central Bank President Mario Draghi's pledge to do whatever is necessary to protect the euro zone from collapse, but markets rallied on a report of imminent policy action."
http://www.cnbc.com/id/48349689
That the Bundesbank initially pushed back, tells you a lot about the German central bank. However, it's hard to argue with success:
"German Chancellor Angela Merkel and French President Francois Hollande pledged on Friday to do all in their power to protect the euro after discussing the latest events in the debt crisis by telephone."
"Germany and France are deeply committed to the integrity of the euro zone."
"They are determined to do everything to protect the euro zone," they said in a joint statement which echoed comments one day earlier by the European Central Bank chief."
Everything sounds good... However, what's it really mean? What about the fiscal targets Germany's always on about?
"Germany's center-right leader and the Socialist president of France said all euro zone member states and European institutions must meet their commitments "within the realm of their own competencies".
You have to like that statement because it's not precise but quite broad and vague. As some countries right now don't have very high competencies does this mean you give them a little break?
In any case, after the announcement, Euro shares ended up 1% for a second straight day of big gains, and the Euro rose strongly.
Still the danger is that there will be the usual differences between Germany and France. In the past we've heard good news like that there will be a fiscal union only to realize what Germany thinks this means is very different than other countries.
It does seem like Germany is mellowing a little. Hollande's election has been very helpful in this, and no doubt the bad numbers that came out of Germany earlier this week, along with the downgrade by Moody's certainly helped. Still the question is, how close are they all really now? There is clearly still room for worry:
"Markets took Draghi's pledge as a signal that the central bank is ready to defend Italy and Spain, whose borrowing costs have hit unsustainable levels, by buying their bonds."
"But the Bundesbank regards central bank purchases of sovereign debt as monetary financing of governments, from which the ECB is prohibited by European law. The German national central bank's resistance could narrow the ECB's options."
"The mechanism of bond purchases is problematic because it sets the wrong incentives," a Bundesbank spokesman told Reuters."
"The Bundesbank saw the possibility of the EFSF bailout buying government bonds "as less problematic", the spokesman added.
For divining the position of Germany and France, let's listen to dueling statements by their respective Finance Ministers:
"German Finance Minister Wolfgang Schaeuble said he welcomed Draghi's pledge and Berlin said it stood ready, just like the ECB, to do all in its power to ensure the survival of the euro."
"The president of the ECB said the ECB will do all that is necessary to maintain the euro and the German government will do all that is politically required to maintain the euro," government spokesman Georg Streiter told a news briefing.
"The ECB makes its contribution and the German government makes its contribution," Streiter added, though the government reiterated its opposition to granting a banking license to the euro zone's bailout funds.
In Paris, French Finance Minister Pierre Moscovici kept up pressure on the ECB to act.
"I trust Mr. Draghi to do exactly what is needed, that is to act so that markets are appeased and there can be a relaxation of the interest rates for Spain, for Italy," Moscovici told France 2 television.
"French President Francois Hollande and German Chancellor Angela Merkel will speak on the telephone later in the day to discuss the implementation of decisions made at an end-June European Union Summit, a French source said."
"The French, Italian and Spanish governments are pushing for the decisions made in Brussels to be implemented swiftly in order to speed up help for Italy and Spain, where borrowing costs have soared in recent days."
Ok, so speed up help for Italy and Spain! Sounds good. What about Greece? They are getting no love. Latvia, in fact is applying to join the euro but only on the condition that Greece be thrown out very soon!
"Highlighting the level of concern about the intensification of the crisis, euro candidate country Latvia said the bloc should expel near-bankrupt Greece as soon as possible as the country is dragging on the region's recovery."
"It must be understood that one cannot entertain illusions that one can keep Greece in the euro zone," Finance Minister Andris Vilks told Latvian public radio, adding that European efforts to deal with the crisis were far too slow."
I find it rather stunning that anyone still wants to join the euro. However, is a Greece exit really a net positive for the euro? Isn't it more likely meant to have a chilling effect? I suppose the idea is to do everything for Spain and Italy so that they don't go the way of Greece, while Greece itself, is now SOL.
I'm not sure Draghi and Merkel are waiting for a Greek exit just to take action after. They probably would prefer to keep Greece in (and believe they can).
ReplyDeleteI also doubt they are prepared to really help Spain and Italy.
We might soon find out, once the Greeks are out, it's showdown!
And there's one thing to say about the euro:
ReplyDeleteThe euro is not a good idea that Europe is mismanaging.
It is a bad idea because Europe is not able to manage anything (in the first place because the European Commission is almost powerless... you can't expect management when you don't have a manager).
(however, the European Union is a good idea that worked fine before the euro, as it did not require much management)
Yes the political idea behind the European idea was sound. The euro zone however may have been doomed to failure from the start.
ReplyDeleteThe trouble is that all these countries give up the power of the printing press, yet they don't have the level of political solidarity required.
Think of how long it took for the various U.S. states to accept the idea of the Union.
And the various states have a lot more in commmon with each other in terms of history, culture and language than the various European states.
It's hard enough for say, Wisconsin to help Lousiana. How can you scpect Germany to help Greece?
Yet the trouble is that the euroz zone is only as strong as its weakest member.
Can it survivie if Greece does leave?