Over the weekend at a Berlin dinner party, the talk was all about what would happen in the French and Greek elections. I have to say, the mood was not particularly positive. Now we have the results, I’m very much looking forward to hearing what another German, Wolfgang Muenchau, will have to say tomorrow about how the redrawing of Europe’s political map will reverberate throught the oncoming months.
Writing in today’s FT, Munchau explains why he believes the Eurzone is running out of options:
Merkel and the ECB can’t agree on a permanent response to the crisis. Meanwhile, last week’s ruling by the German constitutional court on the European Financial Adjustment Facility, the crisis mechanism to bail-out Greece, Portugal and Ireland, “categorically rules out any policy option beyond what has been agreed so far”. The 29 page ruling, which Munchau has read, prevents the German government from signing up to permanent mechanisms, apparently including a Eurobond, and a fiscal union. The latter would require a German referendum which is bound to reject a transfer of sovereignty to Brussels.
Germany’s political leaders are now stuck, and will react more slowly to the next crisis. Munchau worries that this makes a systematic accident, leading to a default by one of the Eurozone members “very likely to happen at some point”.
Writing in the Financial Times, Wolfgang Münchau puts the survival of the eurozone at 50:50. Five years ago the possibility of collapse was close to zero, last year it was no longer trivial, but small, however, events have moved quickly and politicians have done very little to restore confidence. The crisis is moving at a rate that exceeds Angela Merkel’s “political speed limit”.
Lawrence Summers, Treasury secretary under Bill Clinton, is similarly pessimistic unless decisive action is taken quickly. He outlines four measures that the Eurozone must adopt to contain the storm. The alternative to forthright action today is much more expensive policies – to much less benefit – in the not too distant future. Lawrence concludes: “the next few weeks may be the most important in the history of the EU.”
Wolfgang Münchau is associate editor and European economic columnist of the Financial Times, writing a weekly column on political and economic trends in the EU.
Lawrence Summers is a global economy speaker. He is Charles W. Eliot university professor and president emeritus at Harvard University. He was Treasury secretary under President Bill Clinton