There was a big Eurozone summit scheduled for this morning. Hopes for a solution to Europe’s worsening financial crisis ran high enough to lift markets around the globe. How did it turn out?
“No ‘Grand Bargain’ Means More Euro Stress,” says the Reuters headline. Gulp.
The euro zone has agreed to take a big leap forward in economic integration, but failed to deliver a convincing answer to investors worried about its ability to tackle threatening debt crises in Italy and Spain.
As a result, the deal clinched by European leaders in the early morning hours of Friday seems unlikely to ease the intense financial pressures that have plagued the currency bloc for over two years. Nor will it dispel concerns that the euro area could eventually break apart, with one or more countries exiting despite the catastrophic consequences that would entail.
With Britain, the EU’s third biggest economy, opting out of the fiscal process, questions about the cohesiveness of the wider bloc will also be posed.
(Emphasis mine.) Yes, losing the third-biggest economy in the Eurozone does not bode well for the grand unified solution that was supposed to reassure bond investors, who have been having trouble thinking clearly because of the loud ticking sound coming from Mediterranean time bombs. Basically, the only real news to come out of the summit was the announcement of some new bailouts, which will buy only a few months of time, and the introduction of some debt-reduction legislation favored by Germany.
That should sound awfully familiar to Americans, who might remember a little thing called the Budget Control Act of 2011, which promised that Congress would spend a few hours thinking about stuff like a Balanced Budget Amendment and spending cuts. There’s supposed to be another big meeting to produce firmer Eurozone fiscal controls in March. That’s got “Super Committee” written all over it.
Reuters quotes Daniel Gros, director of the Centre for European Policy Studies, saying exactly what I was afraid somebody was going to say, after today’s summit fizzled:
This is a great leap sideways… We now have a framework that in 10 years time could restore a degree of fiscal order to the euro zone. The German view is that this is all that is needed to convince markets to buy Spanish and Italian debt. I have my doubts that it will be enough. I think the tensions continue.
This is all being presented as progress, and thus far the markets agree. The Dow was up 160 points at the time of this writing. I really hate to be pessimistic, but it looks more like sideways motion to me. The underlying problem remains: unsustainable spending levels have turned too many bond sales into horror shows, and the Euro is still plugged into widely disparate national systems that show no sign of reforming. It remains troubling for Americans, because we may yet be expected to step in and address the financial damage when this crapshoot stops floating… and even if we don’t, we’ll suffer when it goes down. Besides, we’re playing the same game.