European finance ministers met last weekend in Wrocław, Poland without reaching an agreement on Greek debt. Decisions like this are difficult for any political process, but the scale of this problem and the nature of Europe's political power structure leaves me wondering if Europe will even be able to come to an agreement on any bail outs, bankruptcy, or similar issues. There is not a strong federal infrastructure, which means that any agreements are constructed somewhat ad hoc and dependent upon near consensus to reach a feasible agreement. So it seems that there are many ways that these intense negotiations could derail, and a difficult road to a potential agreements.
There are many ideas being floated to solve these issues. One includes a larger role for the European Union (E.U.), others include Euro bonds. Philipp Rösler, Vice Chancellor of Germany, is calling for new procedures that would allow Greece or other nation states in the European Union to declare bankruptcy. He has also announced his opposition to Euro bonds. In an op-ed for Die Welt, Rösler continues to oppose increased central powers in Brussels, instead preferring a code for member state budgets and sanctions against straying countries.
Rösler plays a new, but pivotal role in the European sovereign debt crisis. He has recently assumed the Chair of the Free Democrat Party (FDP) in Germany. This is the party that helps Chancellor Angela Merkel's Christian Democratic Union (CDU) party form a majority in the Bundestag. Rösler has only been chair since May when Guido Westerwelle stepped down following terrible regional election results. The party declined further in last Sunday's elections in Berlin. The FDP has declined after not delivering on promises to lower taxes.
82% of Germans are unhappy with the way that the German coalition government has handled the European sovereign debt crisis. With disapproval levels so high, German political instability could be an additional hurdle to any European debt negotiations. Germany has a parliamentary system, so while the next scheduled election isn't until the Fall of 2013, another election could happen earlier if Merkel cannot survive a no-confidence vote. In that case, a snap election would be 60 days after the dissolution of the Bundestag. Rösler stated this week that his party remains committed to that coalition.
Merkel's Union party is still atop the polls as of this month with 31% support, but Social Democrat party gains are threatening to overtake them with 29%. Because there are five semi-viable parties in Germany, coalition governments are the norm. The question is: how long can the FDP continue to stay in a coalition while their numbers are plummeting? Will they need to make a change in political stance in order to maintain their viability?
This shows some of the complexity problems that Europe is dealing with. Every member state has their own political processes that their politicians are trying to gauge and win. These domestic politics may be at odds with larger continental politics. For instance, at the negotiations in Poland, Finland was demanding collateral for their loans, which likely contributed to the non-agreement. It is doubtful that one party kept that group from agreeing to more loans, but it shows how difficult it will be to satisfy everyone. In cases such as these, how can markets truly judge which way governments will act? These uncertainties are adding to market pressures. With Greek default looking increasingly likely and even imminent, markets are wondering what a Greek default would look like, and how it will impact the Euro.
This lack of certainty is fueling frustration. 83% of Germans recently said that they were dissatisfied with the amount of information that they received regarding current European events. These events have been difficult for me to judge, but I always assumed that was because I was on this side of the Atlantic. I can't tell if I should be happy, relieved, or more worried that continental Europeans are just as frustrated as I am at the lack of information coming out of Athens and the other capitols of Europe.
Tomorrow, Greece has interest payments on two bonds worth over 768 million euros bonds to pay. They have said that they have enough cash to pay them, but there was also a recent story that less than 75% of banks are going to repurchase Greek debt when it comes due again. If fewer institutions are willing to buy Greek debt at any interest rate, there is little that anyone can do to stop a default. If Greece does default, I don't know if anyone knows exactly what that will mean. Will they stay in or out of the E.U.? Will they stay in or out of the Euro? Are those mutually exclusive? If they stay in, how are other countries affected by Greek commitments? If they stay in, how much sovereignty do they retain? Do they become a second tier nation within the E.U. Also, if Greece does default, wouldn't they actually need to devalue whatever currency they have anyways to regain their competitiveness? There really are so, so, so many questions.
This situation is likely to continue deteriorating, with any Greek default only adding to problems in Italy and other economies. Even if there were a strong popular consensus, I think it will be difficult for the European Union to arrive at large decisions like this in crisis situations. Given their current fractured opinions, compromises seem even more difficult, and as such, a catastrophic financial crisis seems more likely.
Leonard Cohen - "Everybody Knows"
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| Wrocław, Poland (photo: Stefan Schlautmann) |
There are many ideas being floated to solve these issues. One includes a larger role for the European Union (E.U.), others include Euro bonds. Philipp Rösler, Vice Chancellor of Germany, is calling for new procedures that would allow Greece or other nation states in the European Union to declare bankruptcy. He has also announced his opposition to Euro bonds. In an op-ed for Die Welt, Rösler continues to oppose increased central powers in Brussels, instead preferring a code for member state budgets and sanctions against straying countries.
 |
| Philipp Rösler (photo: Liberale) |
Rösler plays a new, but pivotal role in the European sovereign debt crisis. He has recently assumed the Chair of the Free Democrat Party (FDP) in Germany. This is the party that helps Chancellor Angela Merkel's Christian Democratic Union (CDU) party form a majority in the Bundestag. Rösler has only been chair since May when Guido Westerwelle stepped down following terrible regional election results. The party declined further in last Sunday's elections in Berlin. The FDP has declined after not delivering on promises to lower taxes.
82% of Germans are unhappy with the way that the German coalition government has handled the European sovereign debt crisis. With disapproval levels so high, German political instability could be an additional hurdle to any European debt negotiations. Germany has a parliamentary system, so while the next scheduled election isn't until the Fall of 2013, another election could happen earlier if Merkel cannot survive a no-confidence vote. In that case, a snap election would be 60 days after the dissolution of the Bundestag. Rösler stated this week that his party remains committed to that coalition.
Merkel's Union party is still atop the polls as of this month with 31% support, but Social Democrat party gains are threatening to overtake them with 29%. Because there are five semi-viable parties in Germany, coalition governments are the norm. The question is: how long can the FDP continue to stay in a coalition while their numbers are plummeting? Will they need to make a change in political stance in order to maintain their viability?
COMPLEX INTERNAL POLITICS
This shows some of the complexity problems that Europe is dealing with. Every member state has their own political processes that their politicians are trying to gauge and win. These domestic politics may be at odds with larger continental politics. For instance, at the negotiations in Poland, Finland was demanding collateral for their loans, which likely contributed to the non-agreement. It is doubtful that one party kept that group from agreeing to more loans, but it shows how difficult it will be to satisfy everyone. In cases such as these, how can markets truly judge which way governments will act? These uncertainties are adding to market pressures. With Greek default looking increasingly likely and even imminent, markets are wondering what a Greek default would look like, and how it will impact the Euro.
This lack of certainty is fueling frustration. 83% of Germans recently said that they were dissatisfied with the amount of information that they received regarding current European events. These events have been difficult for me to judge, but I always assumed that was because I was on this side of the Atlantic. I can't tell if I should be happy, relieved, or more worried that continental Europeans are just as frustrated as I am at the lack of information coming out of Athens and the other capitols of Europe.
Tomorrow, Greece has interest payments on two bonds worth over 768 million euros bonds to pay. They have said that they have enough cash to pay them, but there was also a recent story that less than 75% of banks are going to repurchase Greek debt when it comes due again. If fewer institutions are willing to buy Greek debt at any interest rate, there is little that anyone can do to stop a default. If Greece does default, I don't know if anyone knows exactly what that will mean. Will they stay in or out of the E.U.? Will they stay in or out of the Euro? Are those mutually exclusive? If they stay in, how are other countries affected by Greek commitments? If they stay in, how much sovereignty do they retain? Do they become a second tier nation within the E.U. Also, if Greece does default, wouldn't they actually need to devalue whatever currency they have anyways to regain their competitiveness? There really are so, so, so many questions.
This situation is likely to continue deteriorating, with any Greek default only adding to problems in Italy and other economies. Even if there were a strong popular consensus, I think it will be difficult for the European Union to arrive at large decisions like this in crisis situations. Given their current fractured opinions, compromises seem even more difficult, and as such, a catastrophic financial crisis seems more likely.
Leonard Cohen - "Everybody Knows"
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