Euro Crisis Comment Roundup

by Shane Fitzgerald

It has been another hairy week in European markets as shares in French banks have swung wildly, the Swiss banking giant UBS was shaken by a ‘rogue trading’ loss of $2bn, and European finance ministers held yet another crisis meeting, this time with US Treasury Secretary Timothy Giethner making a guest appearance.

It can be hard to keep up with the pace of events in this escalating crisis, never mind with the relentless stream of commentary, criticism and policy prescriptions from economists, politicians and journalists.

There have however been some worthwhile contributions to the debate in the last few days. This post is an attempt to round some of them up. Please feel free to add your own links in the comment section.

On Monday, Martin Wolf of the Financial Times had a must-read column lamenting the sorry pass that the Euro has been brought to. His conclusion?

In the end Germany must choose between a eurozone disturbingly different from the larger Germany it expected or no eurozone at all. I recognise how much its leaders and people must hate having been forced into a position in which they have to make this choice. But it is the one they confront. Chancellor Angela Merkel must now dare to make that choice, clearly and openly.

Today’s cover story in the Economist strikes a similarly plangent tone. “How to Save the Euro” argues that:

the only way to stop the downward spiral now is an act of supreme collective will by euro-zone governments to erect a barrage of financial measures to stave off the crisis and put the governance of the euro on a sounder footing.

The costs will be large. Few people, least of all this newspaper, want either vast intervention in financial markets or a big shift of national sovereignty to Europe. Nor do many welcome a bigger divide between the 17 countries of the euro zone and the EU’s remaining ten. It is just that the alternatives are far worse. That is the blunt truth that Germany’s Angela Merkel, in particular, urgently needs to explain to her people.

The magazine elsewhere covers in more depth developments in European markets and in the increasingly desperate political battle to save Greece. On that front, Spiegel reports, Germany is now fed up and openly planning for a default (a good retort to certain German attitudes can be found here).

Loose talk about the inevitability, and even desirability, of a Greek default and exit of the Eurozone was thankfully tempered by interventions by Jean Pisani-Ferry of Bruegel, Willem Buiter of Citigroup and the Global Economics Research team at UBS. Reuters also rounded up the views of some market analysts on the prospects and consequences of a slide towards full Greek default.

Elsewhere, Robert Peston of the BBC analysed the rout in French bank shares, concluding that they were fundamentally due to a lack of confidence in the Eurozone. “So what is the biggest problem for the eurozone right now?”, he asked. “Well it’s that politicians, regulators and bankers say everything is okay, and no one really believes them. Trust has evaporated.”

Meanwhile, the most radical reform of British banking “in a generation, and possibly ever” was announced, even as it emerged that the UK government is to sue the European Central Bank over planned changes to rules on financial clearing houses. Back in Westminster, British Conservatives planned for the collapse of the Euro, seeing the crisis as a “golden opportunity” to do naughty things to their European peers.

Ireland and Portugal received some good news from the European Commission in the form of a reduction of the interest rates on their loans from the EU, but Ireland risked its recently reacquired star pupil status by formally raising the issue of its guarantees on tax sovereignty again.

George Soros argued that a European treasury was needed to avoid a depression across the continent and the European Commission published a depressing forecast of a stalled recovery. In one small piece of good news, the European Parliament and the European Council at last reached a compromise over the package of legislation that is to usher in a new era of economic governance in the Eurozone.

On our own blog, Prof. Karl Whelan published two excellent posts evaluating the tenure of Jean-Claude Trichet at the European Central Bank. And finally, via the always-excellent irisheconomy blog, someone has put together a visualisation of how the protagonists of the Euro drama see themselves and each other. See you next week.

This article was first published by the Institute of International and European Affairs. Access the original here.