Itâ??s not the UK but Germany that is acting like Europeâ??s errant child. It wanted all the benefits of the euro but when it comes to accepting responsibility it is shirking from it.
Today’s headlines in the newspapers were all about the old fixer Berlusconi who finally ran out of all his tricks and would have to finally go. But the real story is the investors have pretty much signed the death warrant for the euro – but the sentence might be reversed if the European Central Bank steps in.
This morning the bond markets wanted 7% yield to buy Italian 10 year sovereign bonds – the highest the country had to pay since it had joined the euro in 1999. With its huge debt, this is unsustainable and the European Financial Stability Facility (EFSF) does not have the money to bail the world’s eighth largest economy in the world with almost 2 Trillion Euro debt on its head.
The only institution that can do so is the European Central Bank (ECB) – yet both the German government and the Bundesbank are up in arms about using the ECB as the lender of the last resort. Because by being the richest country in the eurozone, Germany, rather German taxpayers would be underwriting those liabilities. It was hard to sell when the German economy was growing fast – now with a economy which is barely growing it is going to be impossible to sell. Yet there is no other option left on the table.
All the tricks have been played except for the most obvious one and each time the markets called the bluff. And we had more meetings and more grand announcements about comprehensive solutions, yet the next morning the markets pretty much laughed at it. In the process a lot of good money has been thrown behind the bad and contagion has spread and the euro is seriously at risk.
But the Germans dither. And the rest of the world economy is put at risk because of a flawed monetary union and the inability of the eurozone member states to own up to the responsibilities of a monetary union.
It seems like not our Prime Minister but it is the German Chancellor and her cabinet that are “out of touch” with reality. No wonder, the German Finance Minister Wolfgang Schauble backed by Paris had the time yesterday to argue for an EU wide Tobin Tax and attack the UK even though the European Commission’s own assessment says its going to reduce EU GDP by almost 2%.
When the EU and the world economy is stalling, the European Commission backed by Germany and France are trying to implement measures that is not only not going to produce zero growth instead it is going to make our economies less competitive. Go figure – and the UK is called the errant child of Europe.