Oh well, that\’s that solved then!

Barack Obama and David Cameron discussed the advancing debt crisis in telephone talks on Tuesday night. The American president and British prime minister \”agreed on the need for an immediate plan to tackle the crisis and to restore market confidence, as well as a longer-term strategy to secure a strong single currency\”, Downing Street said on Wednesday.

Whew!

So, err, what was the plan? Dave? Bo?

Fiscal union which requires treaty changes and probably a German constitution change? Three years time if we\’re lucky?

Monetary easing, QE in all but name, by the ECB? Requiring a treaty change?

Recapitalisation of the Spanish banks? Err, before we actually know how bad they are? Before the exposure of the regions\’ debts? And with whose money? The ERM and EFSF aren\’t allowed to do it.

That there ought to be a plan seems sensible. The problem is, given the institutional structure, that it might not be possible to have a plan.

10 thoughts on “Oh well, that\’s that solved then!”

  1. “Fiscal union which requires treaty changes and probably a German constitution change? Three years time if we’re lucky?”

    You’re assuming that these shysters will play by the rules. What’s your evidence for that? When it came to allowing Greece and Italy, say, into the eurozone the rules, where they weren’t bent, were simply ignored.

    In respect of Germany, it might be that the German Constitutional Court could rule direct payments illegal or the process of constitutional change to make them legal could be started. But, as you say, a ruling or a change might be 3 years down the line. However, the payments/guarantees themselves could occur/be in place tomorrow and Mrs Merkel might consider that, considering the pressure she is under, she’ll deal with the legal niceties in due course.

  2. If Grexit is being priced by the bond markets at 75% probability then some kind of bail-out / debt mutualisation / fiskalunion must be reckoned a 25% probability.
    This would be bad for Germany yet the market does not seem to be discounting Bunds at all.
    Can anyone explain?

  3. So Much For Subtlety

    They probably agreed to blame the Je^H^HGermans. It usually works.

    I have noticed with pleasure Hollande has re-upped the retirement age. French bankruptcy cannot be far off. And hence the time to try the traditional solution for all our problems – war with France. Anjou should be British once more!

  4. There will no doubt be some variant of the old Sir Humphry-esque syllogism:

    * something must be done
    * this is something
    * therefore we must do it

    It’ll all end in tears.

  5. But, but…..have you not noticed that this is a conversation between two people who have NO POWER? While Merkel continues to say “Nein” to everything, these two can come up with all the plans in the world and nothing will change.

  6. blokeinfrance

    I agree it seems illogical. I imagine investors think that fiskalunion, while undesirable, is better than the alternative – which is breakup. They haven’t yet given up hope of Eurorescue, so they are opting for the safest Euro-denominated investments. This will change when they realise that Euro breakup is inevitable and Germany stands to lose the most. Then we will see German bund yields soaring. But by then the Euro will be collapsing, so we probably won’t notice or care about a run on German bunds.

  7. Thanks, Frances

    My problem (maybe a character thing) is I’m quite good at seeing the shit coming down the pike but not so good at seeing the good stuff. Example, I asked my banker in 2006 if I could take a bet on Greeks diverging with Bunds. He told me I was a fool to think convergence wouldn’t continue. Then the roof fell in, of course.

    As a private individual in France I’m not allowed to sell short but the Bund looks like a no-brainer again. But I can’t think of a proxy bull for the Bund bear.

    Any ideas?

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