Guest post. Translated from the French by Tim Gupwell
The G20 in Los Cabos seemed like a preparatory meeting for the Summit of the Heads of State and European Governments! This seems to highlight the fact that they no longer know what to do, and are running round like headless chicken.
The same ideas that had previously been abandoned are back on the table, only to be refused once again by Angela Merkel. Thus, Mario Monti proposed, during the G20, that the EFSF/ESM buy sovereign bonds in order to ease market conditions. He was supported in vain by Mariano Rajoy and François Hollande. The idea of a special treatment reserved for the “virtuous” (sic) European countries is gaining ground, but if one examines it more closely, it assumes – given the financial amounts that are foreseen – that the ESM will dispose of a banking licence in order to obtain finance from the ECB.
Out of sheer desperation – an expression which is likely to be used often – all eyes are turning once again to the European Central Bank (ECB) which could turn the liquidity tap back on again, in the form of a third Long Term Financing Operation (LTRO). The effect of this, as previous operations have shown, would be to further tighten the Gordian Knot between the debt of the states and that of the banks – which is exactly the opposite of what the final G20 press release recommended. This would render the debt-reduction problem even more difficult to escape from.
At the heart of this confusion, the hedge funds have just sent out a bad signal, according to a Financial Times article. They are said to be betting on an increase in German bond rates (Bunds), assuming therefore that the tensions on the European bond market will soon become more widespread. Future episodes are brewing behind the scenes…..
The European crisis used to be permanent with acute phases; it is becoming acute all the time. One thing however is unchanged: it remains on the brink of collapse. Following in the footsteps of Mariano Rajoy, Mario Monti has just declared that Italy will not need a bail-out; nothing to worry about then!