25 Sep 2011

Six weeks to save the euro? More like six days

The G20 leaders’ summit in Cannes is the deadline that the chancellor referred to in Washington. Six weeks from Friday.

By that time, the plan would appear to be to pad up Europe’s banks with a recapitalisation, brandish a very large €-bazooka to wave furiously at the markets, and thereby ring fence the Eurozone banking system and Italy and Spain from a controlled explosion underneath Greece’s epic debt pile.


Well, no. I have attended 10 such meetings where well-laid plans at high powered tables of finance ministers have come unstuck rather quickly. In this case six days seems the appropriate time frame.

Later tonight Asian markets will open responding to the epic doom mongering emanating from the Washington DC IMF Annual meetings. Some are speculating we might get an emergency rate cut from the European Central Bank.

On Tuesday we are currently expecting in the Greek parliament a delayed vote on new fiscal measures, including a highly unpopular property tax. Georges Papandreou’s coalition has a majority of just four MPs. Five or six are expressing concerns.

On Tuesday night Papandreou is booked in for dinner with German Chancellor Merkel in Berlin. Presumably she hopes to win domestic German political capital from communicating the extent of Greek fiscal flagellation.

And then on Thursday, we have the vote in the Bundestag to approve the €-bazooka, the European Financial Stability Facility. Some in Frau Merkel’s coalition, fresh from a beating across Germany in local elections are becoming increasingly strident against the EFSF. The Bavarians too are none too happy

This is another game of Jenga. By playing up at the IMF the prospect of a multi trillion EFSF to calm markets on Monday, the likely German Opposition to the vote will increase. This is particularly the case following the reservations about parts of the EFSF suggested by Germany’s Constitutional Court.

And by seeking visible Greek blood for German voters via a hastily arranged poll tax on Greek homes, there may be some doubt on Greek democracy passing the measure.

Get through the next six days, and then the Eurozone can think about the six weeks.