Photo: Wikimedia Commons
The vote to raise the debt ceiling isn’t a sure thing. But just for the moment, let’s assume it happens.That means it’s time we returned to the real crisis in the world, and that’s Europe.
It was a little over a week ago that the EU held a big bailout party for Greece, unveiling a brand new and bigger bazooka, designed to restructure Greek debt, and prevent the ragin’ contagion from hitting Italy and Spain.
The optimism last for like a day. Since then, Italian stocks have marched lower (lead by financials) and yields, after initially plunging) are threatening to hit new highs (today, for now, Italy is having a fine day).
This is extremely ominous. And while the US situation can be resolved by a single (highly political) vote, Europe is a real, genuine economic crisis, with countries teetering on the bring that really may be too big to save.
Europe’s best critic, Ambrose Evans-Pritchard writes in his latest column: America Is Merely Wounded, Europe Risks Death:
Yet if disaster is an outside risk in America, it is an odds-on likelihood in Europe. It is already clear that the latest EU summit deal is too little to stop a spiralling crisis in confidence, let alone acknowledge that North and South have diverged too far to share a currency union. Spanish and Italian yields are back to pre-summit danger levels, and might fly out of control at any moment unless a lender-of-last resort steps in to guarantee the market.
The European Central Bank still refuses to do so, and the EFSF bail-out fund cannot legally do so until all national parliaments ratify the summit deal to widen its remit. Yet these chambers have shut down for the summer. Europe’s leaders have gone on holiday. The €440bn EFSF is an any case too small. The bond vigilantes broadly agree that the EFSF needs €2 trillion in pre-emptive firepower to forestall a twin crisis in Italy and Spain, though quite how France might pay for this without being drawn into the maelstrom itself is an open question.
Germany’s “triangulating” finance minister Wolfgang Schauble has once again over-promised in Brussels, only to retreat under pressure in Berlin. There will be no “carte blanche” for EFSF bond purchases. So will Germany do whatever it takes to uphold monetary union in its current form, or will it not? We are no wiser.