Thursday, May 20, 2010

Europe is Disjointed: With Friends Like Merkel, Who Needs Enemies?

The Telegraph has a great piece on how Angela Merkel has lost her touch.

The article defends that the threat to financial stability is not the markets but the political decisions that markets are reacting to ("most notably Greece's decision to run a Ponzi scheme instead of a country").

"Merkel's unilateral ban on the short selling of European government debt, [...] is an example of the disjointed and fragmented political behaviour that the euro zone suffers from so much".

Confidence is draining away from the single currency, "a symbol of monetary union that has never enjoyed the requisite political union to make it work".

Merkel's coalition has lost control of the federal upper house, then she announced the ban against short sellers, which sunk the markets and appear to have no other takers. Increasingly the chancellor is alone.

"Merkel can cover her ears and talk loudly about threats to the euro, but that won't make Europe's debt crisis go away. The speculative attacks, if that is what they are, will continue until the investors that European governments rely on are convinced that the euro system is robust and disciplined. That won't happen until it is clear that members such as Greece are going to reform and restructure their economies so they can live within their means. That requires austerity measures which could still prove politically unacceptable and if the political will is weak then so too is the currency".

The article asks the ruight questions, in what state are European's banks really in? The bailout was for them, another case of transferring money from taxpayers to banks.

"But at the heart of Europe's existential crisis are its banks".

"As with Merkel's decision on short selling, far from reassuring investors this kind of action simply saps confidence further as markets wonder what the real motivation is behind such short term and damaging political expediency".

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