Yesterday I was sat in the KIN Global conference in Chicago. An EU official took to the stage and robustly defended the EU’s actions on the Euro. So far so normal. The EU’s line to date has been that even the crisis is good for Europe because it demonstrates the need for greater political integration and the will to work together.
This morning the tone changed. The European Commission’s top economic official, Olli Rehn, finally, acknowledged that the single currency area could disintegrate without “stronger crisis-fighting measures and tough fiscal discipline”. Well, leave aside the second.
The significance of Rehn’s comments is that they signal a breach with Germany. Rehn belongs to the European Commission, which is the administrative arm of the EU Under EU laws only the Commission can initiate new regulations, so the comments are a signal that the Commission is ready to draft regulations to allow the EU to manage bank bailouts directly.
That initiative is opposed by Germany, the ultimate paymaster. So it also suggests that Germany is losing the support of the organizational side of the EU. That will undermine Germany policy influence. Reuters also reports:
Another ECB (European Central Bank) policymaker, Bank of Italy governor Ignazio Visco, went further, saying political inertia and bad economic decisions had put “the entire European edifice” at risk and only a clear path to political union could save the euro.
That too is significant. Germany is the biggest influence in the ECB, even with an Italian ECB President. Italy today is signaling that it is in imminent danger of contagion effects. For international markets, however it is the naked acknowledgement of Euro disintegration that is worrying. It is a change in tone and substance clearly designed to put pressure on Germany. Behind it is a new mood – that Europe might not pull together on this crisis.
“There are now growing doubts among international investors about governments’ cohesion in guiding the reform of European governance and even their ability to ensure the survival of the single currency,” Visco told the Bank of Italy’s annual meeting.
To date EU policy has reflected German wishes. The drift now is towards a common banking policy and a bank rescue fund that does not channel funds via sovereign accounts. That could bring some short-term relief but even so it looks like being July before a bank bailout fund is approved. Meanwhile The Telegraph reports:
Bank of Spain data showed a net 66.2 billion euros ($82.0 billion) was sent abroad last month, the most since records began in 1990. The figure compares to a 5.4 billion net entry of funds during the same month one year ago.
The new alignment in the EU is promising but it looks like being too late in the day.
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