|Wednesday, 14 September 2011 00:00|
After getting the world in a tizzy over the weekend when its economy minister said an ‘orderly default’ for Greece couldn’t be ruled out, Germany is trying one last-ditch effort to rescue the European Union. The chief whip of Angela Merkel’s Christian Democratic Union, Peter Altmaier, has given himself 16 days to persuade coalition members to vote for a larger debt package for Greece as well as serious Eurozone rescue measures including, by December, a treaty to set up a permanent Eurozone crisis management fund. While Altmaier is confident he’ll succeed, the task is an uphill one—Germany’s Jürgen Stark resigned from the European Central Bank when it began buying Italian and Spanish bonds, and what Altmaier is suggesting is a larger rescue/stabilisation package. Within Europe, too, there are deep divisions and the new Finnish Prime Minister said he’d agree to fresh bailouts only if Helsinki received collateral for fresh loans.
While Europe remains undecided on what it plans to do to avoid the crisis that George Soros opines has the potential to be much bigger than Lehman, the US is worried enough for Treasury Secretary Timothy Geithner to want to meet Eurozone finance ministers again—he met G7 finance ministers just last Saturday and is now flying out again to try and persuade Eurozone ministers to get their act together; he’s also planning to meet IMF chief Christine Lagarde and this will be the first time a US treasury secretary will attend a meeting of Eurozone finance ministers.
While Germany remains focussed on how the Greeks are failing to live up to their end of the bargain—though a new property tax was cleared in the face of impending default over the weekend, the Greeks are already behind on the promised 50-billion euro privatisation programme—the problem is a lot larger and certain to get messier as growth slippages in countries like Greece shrinks tax revenues further. Fears of a Greek default resulted in a sharp fall in the stocks of European banks and with the market signalling a default of other countries like Italy and Spain—Italian officials have even met Chinese officials to try and get them to buy significant amounts of Italian debt—the problems are looking like a self-fulfilling prophecy where the market panic is responsible for triggering a crisis. A crisis that looks a lot more severe than Lehman requires a coordinate global response. The problem is that, this time around, countries have a lot less room for manoeuvre and, more importantly, seem a lot more absorbed in their domestic politics—President Obama’s new jobs deal, for instance, is anything but a done deal. As for Germany, Altmaier is on record saying ‘the substantial engagement of Germany in (a European Financial Stability Facility) has to be accompanied by a profound reform of the European institutions in the field of economic governance and stability culture of the Euro’. And PIIGS will fly.