October 27, 2010


Wednesday, October 27, 2010

Euro Bail-out Fatigue Threatens Governments Everywhere

The Germans are tiring of being the EU's bankers.  And the eurozone countries struggling in severe deficit are tiring of the terms imposed for granting them bail-outs.  

The Telegraph reports that Greek PM George Papandreou has said he will call national elections if his party fails to win upcoming local elections. The main opposition group - New Democracy - has not yet confirmed if it would honour the conditions of the EU-IMF €110bn bailout plan. A socialist rebel candidate opposed to the terms of the bailout currently leads the polls for the Athens region. Yields on 10-year Greek bonds jumped 31 basis points to 9.57%.

Meanwhile, Ireland's government said yesterday that budget cuts of €15 billion are needed over the next four years, double the amount previously expected, in order to meet EU targets, reports the WSJ.

For the people of Greece and of Ireland a quick euro-divorce with attendant default, devaluation and reissuing of their own currencies would be a far easier route ahead.  Yet their politicians feel obliged to keep within the terms of the bail-outs they've reached for to cover the growing financial chasm which their countries are suffering.  That' goes for the incumbents anyway. 

If any of the current governments were to fall, elections might throw up new governments that reject the austerity programmes, which stretch ahead for years.  And so too might a new German government reject the idea of continuing with the bail-out programmes.  Merkel's popularity is falling almost as quickly as Obama's.

In the US, a new Tea-Party compliant Republican regime might reject the bottomless guarantee, which supporting the endless Euro bail-outs entails.  The current regimes that hold on in the West are all that stand between the Euro and oblivion, and almost all of them seem to have little prospect of being re-elected.  It means that change will come along.  The certainty that the Euro will be saved at all costs will be the first casualty of their demise, whether the countries are bail-out granting like the USA and Germany, or bail-out receiving like Greece and Ireland.

The logic applies equally to all parties to this bottomless Euro-pit.

From other media -

The WSJ reports that bank lending to businesses in the euro periphery remains weak.  The situation does not inspire the confidence of traders which is grinding down the real economy in these countries.