Monday, January 09, 2012

Nick and Angie's pre-summit mini-summit

The Merkozy duo, German Chancellor Angela Merkel and French President Nicolas Sarkozy, met in Berlin Monday to prepare for the EU summit at the end of this month.

This is high politics and diplomacy, so it's better not to read too much into the public posturing over a meeting like this. One result of it is Nick got Angie to half-heartedly agree to a financial transaction tax (some form of what's also called a Tobin tax). Nick is up for re-election in May of this year and he needs some positions that he can take to the voters that aren't shameless pandering to the one-percenters. Angie gave him her "personal" agreement, whatever that means. Part of what it means is that at least the Free Democratic (FDP) part of her coalition government opposes it. But then, she could probably get the Social Democrats (SPD) to vote for it if she were serious about it.

Nick also managed to mention growth and jobs. But whether that indicates even a shadow of a divergence from Princess Angie von Merkel's insistence on austerity policies for all isn't obvious. Sarkozy and even Italian Prime Minister Mario Monti are trying to bring some pressure on Angie to agree to something that looks more like a stimulus package for Europe's economy, in which even the German economy is showing clear signs of going into recession again.

Some of Germany's bonds are for the first time selling at a real interest rate below zero, as have 3- and 5-year US bonds and even 10-year US bonds recently. This means that investors are willing to pay Germany to hold their investments in their sovereign debt, which is perceived as a safe haven.

This is good news for the German government's own borrowing needs. If Angie weren't such a stone conservative on economics, she would even use the opportunity to borrow. Negative interest rates on your bonds? Where's the downside in borrowing at negative interest rates?

But it's not necessarily a good sign for the eurozone. If investors are flocking to perceived safe havens - German bonds, US bonds, central bank deposits - it may also mean they are pulling back on lending to businesses and also are less willing to buy riskier eurozone countries' bonds.

Greece continues to skate on the brink of bankruptcy. The basics of Greece's situation haven't changed in the last few weeks. Greece will have to have even more writedowns than what their private creditors have agreed to accept, although the IMF is saying that the "haircuts" agreed to so far are sufficient. And as long as they are forced to operate under the EU/ECB/IMF "troika" demands for austerity policies in the middle of this depression, their debt situation will continue to worsen.

This is a mess. And what former Portuguese President Mário Soares says is true: if Angie had provided the necessary support for Greece in time, Europe wouldn't be in the current crisis situation. (Antonio Jiménez Barca, “La generación actual de políticos europeos no sabe decir no” El País 09.01.2012)

Angie and Nick will also be having separate high-profile meetings this week with Italian Prime Minister Mario Monti, the unelected head of the debt-collectors government they installed in Rome.

In a break from Angiedoxy, the American-educated head of the Czech central bank basically says the current Merkozy policy is not going to save Greece (Czech banker: Greece quit euro unless 'massive' funds given Athens News 01/09/2012):

Greece should leave the eurozone and devalue its new currency unless Europe is willing to provide "massive" funding for the indebted country, Czech central bank Governor Miroslav Singer said in a newspaper interview.

Singer told daily Hospodarske Noviny Europeans should focus on helping banks which may need recapitalisation and on issues that can be resolved, rather than devoting attention for years to Greece which represents just two percent of the European economy.

"If there is not the will to give Greece a massive amount of money from European structural funds, I do not see any other solution than its departure from the euro zone and a massive devaluation of the new Greek currency," he said in the interview to be published on Monday.
The key problem in the debt crisis has always been the European banking crisis. Angie and Nick have been using the sovereign debt crisis to address the weakness and undercapitalization of European banks through backdoor methods like subsidizing Greece's impossible debt payments, and the ECB and other central banks buying troubled sovereign debt from private banks to move risk to the public rather than private banks. As Miroslav says, "In connection with the Greek crisis, it will possibly be necessary to pour money even into quite large banks which will suffer losses. It is necessary to immediately focus on banks' problems."

A key aspect of what Angie calls "fiscal union" but is in reality only partially so is that all 26 governments in the EU-minus-one (the UK is the minus one) should agree to have the EU (read: Angie) have the final say over their national budgets. Sarkozy is pitching this idea as not additionally infringing on the sovereignty of the member country, which is quite an imaginative reading of it. It's difficult for me to believe that a number of EU countries won't balk at this before the end of March, Angie's deadline for the agreement to be approved. Especially since it's tied to a dogmatic, non-reality-based austerity economics conception that will only make the current economic and debt situation in the EU worse. I may be surprised. But it's hard for me to imagine that will fly.


Juan Gómez, Merkel y Sarkozy refuerzan su apuesta por salvar el euro El País 09.01.2012

Deutschland leiht sich Geld zu negativen Zinsen Frankfurter Allgemeine Zeitung 09.01.2012

Cerstin Gammelin, Deutschland und Frankreich gegen die Schuldenkrise.Genug gespart, Kanzlerin Süddeutsche Zeitung 09.01.2012

EU, bondholders seek swift PSI deal Athens News 01/08/2012

Ricardo Martínez de Rituerto, Merkel y Sarkozy tratan de acercar posiciones para mantener el euro a flote El País 08.01.2012

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