The New York Times reports that the Euro just got a little too much bigger to fail. “The German Parliament voted overwhelmingly on Thursday for the expansion of the bailout fund for heavily indebted European countries. With that, the front now shifts to tiny Slovakia amid questions about an approval process already months long and still not complete.” The NYT says there may be little appetite in Slovakia, “an impoverished nation from the former Communist bloc whose people suffered mightily to adopt the euro and have little stomach for bailing out richer countries like Greece.” But they are likely to be strongarmed.
The speaker of Parliament in Slovakia, Richard Sulik, has said he will do whatever he can to stop the bailout fund from coming to a vote, even as advocates have desperately sought a compromise. But the combined pressure of the euro zone members will probably be more than Mr. Sulik and other opponents can bear.
Buck up Mr. Sulik; sacrifices are needed for the greater good. Even if there is nothing “good” anyone can think of, you must admit that it is at least “greater”. But the problem, according to Jeremy Warner of the Telegraph, is that none of these further commitments of resources is accomplishing anything other than roping the membership of the EU together so that they can go over the cliff as a unit.
As it stands, the single currency has become a doomsday machine, driving Europe and the rest of the world ever closer to financial collapse. Can it be switched off in time? … No one can be in any doubt about where this is all heading. … Behind these ructions lies a dogged refusal to acknowledge the root cause of the problem…
Ezra Klein at Washington Post has interviewed someone with a less pessimistic view. Carmen Reinhardt believes that a combination of postponing the debt maturities and forcing bondholders to take a haircut would solve the problem in the long run. That plus a European purchase of distressed economy pain and the recapitalization of banks from taxpayer funds will eventually do the trick. Reinhardt says:
I think the outlook is dire, but it’s not end-of-the-world dire. I don’t think it’s even end-of-the-Euro dire. I think the ultimate endgame in Europe is debt restructuring in Greece and Ireland and Portugal. And, in particular, I mean haircuts. I mean changing contracts to be less favorable to the creditor. …
If the policymakers were to be proactive, they would restructure Greek debt alongside bank recapitalization and at the same time, restructure both Portugal and Ireland as well. …
I think the most constructive thing would be for the ECB to purchase literally industrial quantities of the debt of these distressed economies and, secondly, for not just Germany but also individual governments to set aside some funding to recapitalize the banks that are holding these debts so there isn’t as much of a run.
There is in all of this the implicit supposition there exists a real pool of resources to reinforce failing institutions and that this pool of resources amounts to something more than a printing press. But if such an El Dorado does exist Reinhardt does not identify its location. The money seems to be slated to come from “government” or the ECB — that is to say from either the taxpayer or from more debt — from places we’ve looked already. A cynic might be tempted to conclude that Reinhardt’s El Dorado is as genuine as the original.
Maybe Warner is right. The European Union has turned on a Doomsday Machine and they can’t bring themselves to turn it off. The worst of it is that the more energy and money the Eurocrats feed it, the more powerful this Doomsday Machine seems to become. It is as if malinvestment, driving this destructive process, becomes more destructive the more malinvestment there is. One thing seems clear: the Euro-killer is growing, growing and growing. When conventional weapons won’t work, what is there left but the hope of a political act of courage; that some nation, some politician, will have the nerve to say the unsayable.
Nah. Kick the can down the road. Now the only question is, when things really become desperate who can the rest of the world convince to play the part of Captain Kirk and pilot the USS Constellation into the heart of the Doomsday Machine? Maybe they can convince Ben Bernanke if he can figure out a way to transport the world’s entire wealth to safety back to the Enterprise in time.
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