Monday, June 4, 2012

The Nub of the European Crisis

The Lehmann Letter (SM)

Here’s the nub of the European crisis: Can northern Europe and southern Europe agree on the conditions under which the north bails out the south?

Below the link is an upbeat passage that appears near the end of an article in today’s New York Times entitled:

Euro Zone Is Lurching to a Crossroad

“Some experts said … that it would be a mistake to underestimate European resolve about ramming through unifying measures like euro bonds and tighter common control of national budgets — especially when the prospect for not doing so looks so dire.”

That looks encouraging, but it followed these paragraphhs:

“As Spain’s economic crisis deepens and uncertainty swirls over Greece’s future in the euro zone, the guardians of the increasingly fragile European monetary union are near a moment of truth: Can they muster the will and resources to keep the euro zone from breaking apart?....

“Over the weekend, leaders of two of the euro’s most vulnerable countries rallied to the cry of more unification. Mario Monti of Italy called for using euro bonds to create a quicker path to common debt for Europe. And Mariano Rajoy of Spain floated the idea of a common fiscal authority in Europe to synchronize budgets and manage debts…..

“Integration, in the form of banking and fiscal unions, would take time, of course, although policy makers are pushing harder than ever on these fronts. As for short-term measures that countries like Spain are pushing for, namely to get Europe to provide money for its banks or buy its bonds in bulk, these steps would require sacrifices that Spain seems in no mood to make. ….
“It is the nub of the euro zone’s existential quandary: how to get taxpayers in northern creditor countries like Germany to provide funds to countries like Greece and Spain that are unwilling to accept the loss of sovereign control over their banks and budgets that would be the consequence of such assistance. …
“Germany, however, has no desire to swallow the bill for Spain’s bad banks, so it is insisting that funds be disbursed to the Spanish government and that strings be attached. It wants more draconian spending cuts and perhaps even losses for the mostly Spanish investors who hold the stocks and bonds of these failed banks.….”
But as Berlin and Brussels butt heads with Madrid over who pays what, when and how, money continues to flee Spain at an alarming rate….”

This letter continues to believe that Europe can reach agreement to end the crisis, but negotiating that agreement is a struggle.

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© 2012 Michael B. Lehmann

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