European unity!

Another exciting episode in the European Soap overnight.

Yet another German Finance representative, this time Bundesbank President Jens Weidmann, released statements containing the opposite message to the one delivered by Angela Merkel when she’d asked all of the elites in her country to keep quiet for the sake of unity:

The European Central Bank has burdened itself with “considerable risks” and these should be unwound, Bundesbank President Jens Weidmann said on Tuesday, in a thinly veiled attack on the ECB’s bond-buy plan.

In his first speech since news broke on Friday that another German ECB policymaker, Juergen Stark, is resigning in protest at the bond-buying plan, Weidmann also criticised politicians’ response to the debt crisis and said worries about the euro are increasing in Germany and other parts of the euro zone.

Weidmann and Stark both opposed the ECB’s decision last month to reactivate the bond plan following a 19-week pause. The bank decided to buy the bonds of Italy and Spain after they came closer to succumbing to the debt crisis.

“Central banks have taken on some of the load of fiscal policy for the support of individual countries or banks that have fallen into trouble,” Weidmann said in a speech to the Family Business Association in Cologne.

“Because of this, the Eurosystem books are now burdened with considerable risks,” he said, referring to the Eurosystem of central banks, comprising of the ECB and the 17 national central banks in the common currency bloc.

“I am of the firm view that these should henceforth be unwound and definitely not increased. It is high time that fiscal policy(makers) decide which risks they want to take on to fight the crisis but also in the long run. This is not the role of monetary policy(makers).”

Those statements were obviously ignored by the EU Commission president who delivered an “all or nothing” speech to the European parliament stating that they had failed to convince the world that they can provide decisive leadership to bring about a solution for Europe’s economic problems. He promised to come forward soon with a set of options to create a new euro bond. Although given the latest German constitutional court ruling I am unsure exactly what this would look like. Germany has all but given up on the idea and Angela Merkel herself has stated the the eurobond mechanism is not the “right one for Europe”.

Mr Barroso said some of the options the EU commission will introduce would fall under the current treaty but others would require additional ratification through parliaments. He did, however, offer caution that the plans are no “quick fix” and would require the determination of all member states:

Let us not confuse these projects of deeper integration with immediate necessities. Ideas that would require substantial Treaty change are not going to be a substitute for Greece doing its homework or for Euro area countries strengthening their fiscal surveillance. We must avoid compounding the dissatisfaction in public opinion by being seen as failing to deliver overnight what we already know takes time.

What we need now is Greece to fully carry out its reform programme, is the 6-pack to be adopted and is member states to ratify the July 21st agreements. What is our credibility on deeper integration if we cannot deliver the 6-pack and the 21 July agreement? Only by proving ourselves in this way can we regain the market and public confidence necessary to even aspire to longer-term goals to a more ambitious Euro area and to a stronger Europe.

The Commission will continue to play its role to the full, putting the key proposals on the table that shape both the immediate and the long term response. Proposals that are ambitious and should reflect the interest of all.

What both the citizens and the investors want is political determination and economic discipline. To deliver this, we need more, not less Europe.

Deeper integration is part of the solution. It will happen – not overnight – but in a solid, democratic process with a participation of this Parliament.

It was a great political speech, but given the last 18 months of political argy-bargy across Europe you have to question whether it has the faintest possibility of actually happening. But there was a glimmer of hope,  at least on the political level, after Sarkozy, Merkel and Papandreou made statements about their most recent discussions:

French President Nicolas Sarkozy and German Chancellor Angela Merkel said they are “convinced” Greece will remain in the euro area and that Greek budget cuts will restore stability to markets amid international calls for Europe to step up crisis-fighting efforts.

The leaders of Europe’s two biggest economies issued a statement after they spoke to Greek Prime Minister George Papandreou by telephone today. Papandreou committed to meet deficit-reduction targets demanded as a condition for an international bailout, according to statements distributed by the governments in Athens, Berlin and Paris.

Sarkozy and Merkel “are convinced that the future of Greece is in the euro zone,” the French statement said.

That unity was tested just a few hours later with a false alarm from the Austrian parliament claiming they had not ratified the EFSF:

It turns out the initial headlines on the wires were wrong, needing almost immediate correction: The parliamentary committee only rejected some procedural matter and plans to address the EFSF expansion later.

The Dow fell about 112 points after the initial headlines crossed, and is now down just 64 points on the corrected headlines. The S&P is off about 4, the Nasdaq is nearly breakeven.

With all the good news you would have hoped to see a rally on the markets, and we did on the equities. But the Greek 1yr bond has moved ever higher to 140%+, another two undisclosed banks had to tap the European Central Bank for $575 million US dollar funding at a 1.10 rate overnight , and the IMF are back warning Portugal to “strengthen spending control and reduce wasteful expenditure” because once again austerity isn’t behaving the way their textbook tells them it should.

The European politicians are sounding a little more harmonious today, but in reality nothing much has changed. The European economy is still sliding backwards, and a lot more than just motherhood statements is going to be needed to fix that.

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  1. So Sarkozy, Merkek and Papandreou had a telephone call, and this is worth a 3.5% rally on the DAX, and 2.5% on the S&P 500 (at one point anyway)?

    Was anything new said, or just more reassuring noises?

  2. IMF are back warning Portugal to “strengthen spending control and reduce wasteful expenditure” because once again austerity isn’t behaving the way their textbook tells them it should.
    How much money does IMF have left with them? Their Austerian policies have failed in virtually every country they have intervened. Sooner the IMF runs out of money, the better it is for all of us.

    • Yeah read it already. It all seems so obvious to me, but hey, they did have a teleconference, so equities are on a tear (natch).

  3. So the answer to the whole problem was for the ménage à trois to explain that good ol’ Greece will meet its obligations and stay in the Euro block after all. I mean, was that so hard? Makes you wonder why they didn’t just think of that all along!