Tuesday, 15 November 2011

Make your mind up time.

My perception is that the eurozone crisis has deteriorated badly in the past 24 hours.  The installation of technocrat prime ministers in Italy and Greece has produced no 'bounce' in the financial markets and Spain is being dragged down.

In Germany Chancellor Merkel has announced that changes to Germany's constitution are being contemplated as a precursor to closer political and fiscal union. There would have to be  referendum although there are doubts whether the German parliament would approve the changes prior to the referendum.


Mrs Merkel also stated her opposition to eurobonds,  debt-pooling or any form of fiscal transfers to weaker EMU states  and her support for the  introduction of sanctions for financially lax countries and the adoption of a financial transaction tax - with or without Britain.   A senior German minister stated  there should be an elected European government.

So a number of nations may move to a fiscal and political union.  But what of the others?  A commentator on the BBC this evening suggested that we would not have a two-speed Europe as that suggests that there are two groups, moving at different speeds to the same destination.  Should the eurozone agree fiscal and political union, the other nations will not catch up but move in another direction.  A rational argument which brings me to the title of this post.  Soon, it will be make your mind up time for the United Kingdom. 

The UK prime minister declared this evening that he is a eurosceptic. He is seeking repatriation of some of the power ceded to the EU and certainly would not promote the idea of fiscal and political union.  His party's coalition partners, the fanatical pro- EU Liberal  Democrats may decide that the coalition has to end.  It is unimaginable now that there will not be a referendum in the UK should Mrs Merkel's proposals gain traction.  I am sure they will as she is unlikely to have gone out on a limb.  I have no doubt that the French have been consulted and have agreed to her proposals.

Meanwhile, the current crisis continues.  The ECB will not be coming to the rescue, hence the anxiety in the financial markets.

An excellent article - also covers the German position regarding the ECB.




ADDENDUM from Daily Telegraph: 15.11.2010.

11.27 Quick word on Italy from Schroders’ chief economist Keith Wade:
QuoteWith no solution to Italy’s problems in sight, the country can continue to raise money from the markets at high interest rates whilst the ECB can continue to buy Italian debt and try to cap yields. However, neither is sustainable. This would mean we are headed for an almighty crunch. Either we continue along the current path [where Italy is likely to run out of funding options], or Germany has to give way on QE. Thinking through these scenarios should make euro policymakers redouble their efforts to find a solution: make the EFSF fly or get external help. QE is probably the lesser of two evils when compared to euro break up, but recognising that the ship is currently headed for the rocks should spur a change of course.

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