Oct 30, 2011 5:30 AM GMT
'what can't go on forever... won't'
As someone who works in financial services, I follow the markets – in the West, across Asia and the entire world – closer than most. Since the Bear Stearns collapse in March 2008, through the demise of Lehman Brothers and its ghastly aftermath, much of my professional life has been dominated by the angry flashing of those little lights on a Bloomberg screen. [...]
The question of who will lend to the EFSF, on whose collateral, and who will ultimately repay the loans, was barely addressed last week. Such tricky questions will apparently be answered at the next European summit in December. Meanwhile, the fundamental disagreement between France and Germany regarding who should take the biggest losses – eurozone governments or private creditors – remains unresolved. Since Thursday's announcement, though, Germany's powerful constitutional court has issued an injunction requiring the country's full Parliament to approve any EFSF bond-buying.
What is needed, urgently, is a clean, transparent Greek default – allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".
The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.
The eurozone must be consolidated. World leaders should similarly force European banks to disclose their losses, we all take the hit and then we move on. Instead, we are served-up, in ever more complex variants, the same "extend and pretend" non-solutions. It gives me no pleasure to write this, but I give this deal two weeks.