Only Germany can save EMU as contagion turns systemic

The Telegraph ^ | 7/20/2011 | Ambrose Evans-Pritchard

[bruinbirdman]

Europe's leaders have finally run out of time. If they fail to agree on some form of debt pooling and shared fiscal destiny at Thursday's emergency summit, they risk a full-fledged run on South Europe's bond markets and a disorderly collapse of monetary union.

"We are heading towards fiscal union or break-up," said David Bloom, currency chief at HSBC. "Talk is no longer enough as the fire threatens to leap over the firebreak into Spain and Italy.

"What the market is worried about is Germany's long-term committment to the euro project. If we see unreserved and absolute backing from the political establishment of Germany, that will be a soothing balm."

Chancellor Angela Merkel seemed in little hurry on Tuesday to convey such a message. There will be no "spectacular step" at the Justus Lipsius building on Thursday; just a "controlled process of gradual steps and measures", she said with unflappable calm. Given the simmering wrath from top to bottom of German society, it may be impossible for her to do much more.

Jens Weidmann, the Bundesbank's president, has made her task that much harder by telling the eurosceptic Bild Zeitung that "nothing would destroy the incentives for a solid budget policy more quickly and more permanently than joint liability for national debts. European and especially German taxpayers would have to answer for the entire state debt of Greece. That would be a step toward a transfer union."

Days earlier he shot down proposals for issuance of eurobonds or use of Europe's rescue fund to buy Spanish and Italian bonds on the open market, crucial steps to prevent Italy and Spain being drawn into the maelstrom. "It has a high cost, limited use, and dangerous secondary effects," he said, departing radically from the script of the European Central

[newzjunkey]

What a fiasco. I don’t envy Merkel.

[VanShuyten]

"Jens Weidmann, the Bundesbank's president, has made her task that much harder by telling the eurosceptic Bild Zeitung that "nothing would destroy the incentives for a solid budget policy more quickly and more permanently than joint liability for national debts. European and especially German taxpayers would have to answer for the entire state debt of Greece. That would be a step toward a transfer union."

Just think of "joint liability" for state debts. Stimulus 3 is coming.

[gr8eman]

I don’t either. Politically she is toast for going along with the Greek bailouts. If she stood fast against them she would easily be reelected IMO, and Greece probably would have defaulted and went back to the Drachma quicker which is the only way this will end peacefully.

[European Guest]

If she is paying for the greeks she is toast.