Belgium saw its credit rating downgraded last week as the situation in Italy got worse. Both Italy and Spain are paying more for short-term funding than Greece whose intentions are a mystery worthy of Agatha Christie as none one really knows if their promises were empty or they stand poised for action.
Smaller countries like the Czech Republic continually asks questions like – “why am I , a little poor country by comparison, being asked to fund the rescue of this lot, who are richer than me but appear to be doing nothing to fix things except ask me to shoot myself in the foot for them”.
Add to this that Ireland and Portugal are well placed to be next to dive into the ditch of despair, the UK is said to be on the brink of a second recession, the US hovers on the sidelines worried that the death of the Eurozone will impct its own recovery while China, Brazil and other emerging super economies look on in amazement saying the local equivalent of what the hell is going on over there!
Thank Heavens France and Germany are going to sort it all out!
Or are they – they cannot agree on what to do to save their world and the scariest news fell out of Germany last week when the government bond auction failed, raising but 60% of what it needed. Some spin this pointing to special circumstances and unique technical issues in order that we do not regard this as a true picture of Germanys creditworthiness). But the true picture may be worse. T
he true picture may be that in the inertia created by trying to remain apart from, but close to, these issues Germany is standing too close to the fire and could get burnt. This is not the time for indecision, navel gazing or wishing things were different this is a time for action and the consequences of not acting are dire for all concerned.
Of course, as the Eurozones largest economy, Germany is already involved in the debt crisis. It is coming under increasing pressure to employ its financial muscle to save the euro which in practice means increased European integration which has to, at this point in time, be bankrolled by Germany. Germany, however, appears to be trying to create a little distance between it and the problems, creating a gap in the vain hope that a White Knight will sweep in so Germany does not bear so much of the cost themselves.
Is this a valid desire! Germany has, more than any other country, benefitted from monetary union and if the Euro fell over Germany would suffer so it might be right to shoulder the lion’s share of this burden in this time of crisis The problem is that Germany is well aware that salvaging Europe will require a dragons hoard of Euros with large amounts of this coming out of German pockets particularly where they pay the lions share of measures that allow weak economies to borrow cheap while they must pay more for the same. This will distort the market terribly often to Germany’s disbenefit. German business will suffer and there is an element that this approach bites the hand used to feed it.
So Germany appears dammed if it does and dammed if it doesn’t and the fate of the eurozone hangs in this balance. It will live only if Germany steps up to bite the bullet and stops wishing that Brussels and the rest of the world will step in to help. Germany will suffer whatever happens – it will be hurt, no one should envy the decisions Angela Merkel has to take. But the rest of the world will not help as much as Germany wants.
Those that care, like the UK, are already hurting. Those that only care about the impacts like the US will seek to minimise the damage to their economy and throwing cash at Europe is not considered viable strategy to achieve this. The Chinese and others with currently strong economies would not help on a way that hurt them – they do not risk their soverign wealth except to benefit themselves and the strings that would be attached may feel acceptable now but would likely not in the future- best not to harm our relationships with these emerging supereconomies – let them emerge as our equals not as our owners.
So Germany in general and Angela in particular are going to have to be brave either way. Cork Monkey salutes them and wishes them well.CM
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