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Posted by
Olog-hai
on Tue Nov 15 20:28:40 2011, in response to Re: EUEUEUEUEU was never about democracy, but technocracy, posted by Olog-hai on Tue Nov 15 19:59:27 2011.
edf40wrjww2msgDetailOT:detailStr fiogf49gjkf0d And look who continues to pull the strings.
Manchester Guardian this time
Germany faces crunch time over eurozone crisisThe markets clearly think the crisis is spreading to the core of eurozone, but the pfennig appears yet to drop in BerlinLarry Elliott, economics editor
Tuesday 15 November 2011 16.33 ESTIt is make-your-mind-up time for Angela Merkel. Not next year. Not even next month. But this week. The financial markets were ugly on Tuesday, flashing a loud and consistent message: the crisis in the eurozone is no longer confined to the weak Club Med countries but is spreading to the core.
Germany has to decide whether to drop its visceral opposition to the European Central Bank acting like a true lender of last resort, or face being blamed for the breakup of the single currency.
This is a tough call for Merkel, but what happened in the markets on Tuesday was significant. The loss of confidence in Greece, Italy, Spain and Portugal was old news. The new development was that investors were also increasingly wary of lending to those countries that would, along with Germany, form the nucleus of a hardcore euro in the event of a breakup.
Interest rates on Belgian, Austrian and French debt rose sharply. There was even pressure on Dutch bonds, traditionally seen as the second safest in the eurozone after German bunds. Bond dealers reported a full-scale run on French bonds.
By contrast, Switzerland — the safe haven of choice for nervous investors at present — sold six-month bonds at an interest rate of -0.3%. Investors, in other words, were paying the Swiss government for the privilege of being allowed to lend money to a country seen as rock solid. This is simply a posh way of hiding money under the mattress.
The financial markets understand just how critical the situation is, even if the pfennig has yet to drop in Berlin.
Dhaval Joshi, at BCA Research, delved into the world of physics to explain Europe's predicament. "Approaching a black hole, cosmologists define the event horizon as the point beyond which it is impossible to escape a guaranteed ultimate annihilation," Joshi said. "The fascinating thing is you can cross this point of no return without realizing that your doom is certain. So the question is: has the euro area unwittingly crossed its own event horizon? We believe not, although it is getting dangerously close."
Joshi sent this note out on Monday night. Twenty-four hours later, spaceship euro had been sucked even nearer to the edge of the abyss and now faces three interlocking problems. The first is that the financial markets are unconvinced that governments can sort out their public finances. The second is that nobody in Europe shows any sign of taking charge of the problem. Merkel is no Bismarck, Sarkozy no De Gaulle.
Finally, there is a problem of time. The markets operate at warp speed, European politics to the gentle rhythms of 19th century diplomacy — ensuring that policy makers are always behind the bond traders.
So what happens now? A complete breakup, although more likely than six weeks ago, is still a remote possibility. If there is one thing likely to make Europe's political class move faster than a giant tortoise it is the prospect of wasting all the political capital invested in monetary union. Logically, therefore, there are only two options left. One is for Merkel, Sarkozy and the rest of the eight-strong Frankfurt Group to work up a Plan B, with a small number of countries joining Germany in a new northern euro and the rest of the current eurozone forming their own satellite zone. But Plan B is unlikely until things look even bleaker for the euro than they do today.
Alternatively, the ECB has to crank up the printing press to buy enormous quantities of Italian and Spanish bonds, throwing inflationary caution to the wind in the process. This is tough for Germany to swallow, in large part because of the memories of the 1923 hyperinflation.
Behind the scenes, it is said, Merkel is in favor of allowing the ECB to print money, but is not prepared to say so.
The Bundesbank, Germany's central bank, would certainly oppose anything that smacked of printing money. But that would be irrelevant if a majority of the 23 members of the ECB's governing council decided the emergency was so serious that there was no choice but to act to save monetary union from a collapse of confidence that might trigger bank failures on a massive scale and cause a global slump reminiscent of the 1930s. Such an eventuality looked scarily close on Tuesday night.
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