According to The Telegraph, German Finance Minister Wolfgang Schauble said that boosting the EFSF would be a stupid idea because it would “endanger the AAA sovereignty of member states.”And when the White House said that failing to to recapitalize banks was “scaring the world,” Schauble basically told it to mind its own business.
“It’s always much easier to give advice to others than to decide for yourself. I am well prepared to give advice to the US government,” he said.
Clearly, this isn’t the most diplomatic way to reject an idea, and the EU can’t really afford an angry White House. The U.S. Federal Reserve is already doing everything it can to prop up the euro (dollar swaps for one), and Treasury Secretary Geithner has made it clear he wants the EFSF to have more power.
Meanwhile, the market is clinging to optimistic rumours as Angela Merkel fights for her political life (and for more EFSF funding) in Germany, and Greek PM George Papandreou promises that his country will honour their austerity measures.
They haven’t so far, and according to analysts, it doesn’t matter if they do.
Lorenzo Bini-Smaghi, an ECB board member, said those arguing that Europe’s banks could withstand a Greek default are misguided. “Similar views were held before Lehman. Those who say this have no idea how contagion works,” he said… Analysts say the Troika will have to approve the next €8bn tranche of aid for Athens in October whether or not Greece has complied fully with the terms. It cannot risk a showdown before Europe’s banks have beefed up their capital base, or before the EFSF is fully equipped to defend the rest of the system.
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