Belmont Club

One Day More

A question was posed on a recent open thread: would the EU let Greece exit, or would they attempt to keep the currency in the fold. As a bonus, readers were asked to choose which song the Fat Lady would sing to correspond to the outcome. Well, according to the Guardian, we can now name that tune.

Let me try again; let me try again.
Think of all we had before,
Let me try once more.
We can have it all, you and I again.
Just forgive me or I’ll die.
Please let me try again!

It is “print money, Angela. And save Greece. At least that is the recommendation from Barack Obama and David Cameron, who ‘demanded’ that “she drop her G8 resistance to setting out a clear path for Europe out of its crisis. Measures resisted by the Germans included a looser monetary policy for the European Central Bank that would enable quantitative easing similar to that deployed by the Federal Reserve and the Bank of England.”

Merkel is resisting along the line of the See Now Heights, but it is not known how long she can hold out against the mechanized hordes of her opponents. “It was being suggested that the Germans, partly due to their isolation at the summit, were pressing for specifics to be deferred to an informal EU council later this week, and arguing it was not the business of the G8, including Canada, Russia, Japan and the US, to tell the EU states how to handle their economy.”

The Telegraph says “that could mean the issuing of eurobonds, loans guaranteed by all 17 eurozone governments.”

Mrs Merkel has resisted any such plans, reluctant to ask German taxpayers to underwrite the budgets of indebted southern Europeans. But as G8 leaders put more emphasis on the need for growth than on the need for austerity to balance budgets, the chancellor risks being isolated in Camp David.

It is not clear that “growth” means anything to some of the concerned governments other than more public spending. The Australian noted that President Obama had “thrown his weight behind French calls for more pro-growth policies in Europe”.

Fearing Europe’s economic crisis is poised to worsen – with dangerous repercussions for the US economy and perhaps Mr Obama’s chances of re-election – Mr Obama weighed in, risking the ire of German Chancellor Angela Merkel, who has championed an austerity-first approach.

The chief idea of a new “growth compact” according to a European economist is to create a “new tone” because anyway the current strategy isn’t working. As to the details of the growth compact,  Charlemagne at the Economist says it is basically tax and spend on a continent wide scale with printed money thrown in to cover the gaps.

Calling for growth is like advocating world peace: everybody agrees that it is a good thing, but nobody agrees how to do it. Mr Draghi’s ideas, as far as they can be divined, are to promote structural reforms to make labour markets more flexible and encourage entrepreneurship. Mrs Merkel echoes this, saying promoting growth need not cost billions. Liberals add that a key to higher growth is to remove barriers to the EU’s single market, particularly in services.

Yet Mr Hollande is against such ideas. His programme for France, which has one of the biggest public sectors in the world, is mainly about more spending and more taxes. In the EU he wants common European project bonds to finance infrastructure, a capital injection for the European Investment Bank (EIB) and a redirection of EU regional funds towards jobs. Much of this can be done so long as Mr Hollande does not try to reopen the actual text of the fiscal compact.

Apparently the view is that “tax and spend” can happen if it tip-toes its way around the other sacred cows. Germany is not buying it, but the Eurocrats — and apparently President Obama — may think it has a chance.

European officials are now debating whether they can make fiscal targets more flexible without losing credibility, and without giving governments a licence to break the rules. Germany argues, with some justice, that the southern Europeans will reform only under extreme duress. It did not happen in good times, so now it must in bad times, declares one Eurocrat.

That Eurocratic argument sounds suspiciously like the argument of a drunk who asks for enough to drink to get the DTs and by enduring its horrors be forever cured of his alcoholism. Well good luck to them. As Zero Hedge points out, Spain revised its estimate of the 2011 budget deficit from 8.5 to 8.9%.

Just when we though that nobody would take advantage of the cover provided by the epic flame out of the FaceBomb IPO and the ongoing market crash, here comes Spain. Because there is nothing quite like a little Friday night action following a market drubbing and an “IPO for the people” shock in which to sneak the news that, oops, sorry, we were lying about all that austerity. Because while it came as a surprise to the market back in December when Spain announced it would post a 2011 budget deficit of 8.5% instead of the previously promised 6%, the market will hardly be impressed that Spain actually overspent by another €4.2 billion, to a brand new total of €95.5 billion of 8.9% of GDP.

It’s getting to look like the opening scene in Indiana Jones where Indy, having triggered a boulder designed to crush interlopers into the sacred temple, must race away as fast as his heels will carry him in the hopes that he can reach the elections — oops, the cave entrance — before the rock crushes him to jelly.

But there is one further problem: What do the current crop of Western Leaders do for an encore if they succeed in extending their miserable political lives? What happens when the bill on their Growth Compact finally comes due? But maybe there’s no answer to that question. There never is at the end of an era.

One more time.


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