The Euro story is degenerating into farce. This week we were told the future of Greek debt and the wider European banking system was hanging by the thread of a phone call between the French, German and Greek governments. Markets waited for these people to miraculously solve the problems of the Greek deficit, Italian borrowing, French banks and all the other issues that the Euro scheme has created.
They were never going to do so. They could have found the answers to these problems at any point in the last decade if they had wanted to. Instead, in good times and bad, they chose to ignore the dangers and avoided making decisions. They ducked the question of how they could stop countries free riding on the common currency and interest rate. They failed to discipline countries borrowing too much. They did not want to make the large cash transfers around the union in the way that is usual if you have a single currency. They did not even sort out what range of powers their Central Bank has, with German resignations over the policy of buying up bonds. Now they are torn over how many Euros to print, and how much money to tip into their damaged banks.
The gap between what is needed for a successful single currency and what is offered is huge. The markets do not believe the EU political leaders. The people in the affected countries increasingly dislike the scheme. The weak countries are fed up with the austerity it delivers. The strong countries are fed up with the tax bills they will receive to pay for it. The Euro lacks economic credibilty and lacks democratic authority. It would be best to break it up before it does more damage.
The phone call described the world as the leaders wish it to be – Greece in the Euro, Greece meeting all her obligations, and the markets believing all is now right. Somoehow it does not feel like that. We still do not know how many sovereign bonds the European Central Bank will be allowed to buy. We do not know how they will pay for all those bonds. We do not know how many new Euros they will be allowed to print. We do not know why the EU is demanding Eurobonds when Germany rules them out., We do not know how they intend to strengthen their commercial banks. We do not know how long it will take to implement all the July measures.
In short, the single currency remains an orphan. There is no united single sovereign to love and protect it. There is no-one with enough power to make all the important decisions. The German government is at war with itself. Germany is in disagreement with other countries in the zone. The Commission is in disagreement with Germany.