Saturday, 17 December 2011

It’s the financial markets, stupid

‘The real game’s not over here’ – Lou Reed
What is the main thing driving the urgency of a solution to the euro crisis? Why, the financial markets, of course. Not because they should be calling the shots, but just the obvious reason, that you need to keep them on board in times of crisis because, if not, in that water there are sharks who will kill you. That is the way it has always been, from the South Sea Bubble to the current crisis.
First of all, there was the summit, which had the UK media, not to mention those in Europe and across the world, in a frenzy. But not about the dismal failure of the summit to agree a credible package to save the euro. No, a much more readable story was Cameron’s walkout and Britain’s isolation. But some softer voices, the business editors and the FT , made the point.

And then, not content with more than six months of wilful foot-dragging, German Chancellor Angela Merkel, on Wednesday, showed equally questionable logic as she broke the first rule of monetary management: whatever you’re saying, be bloody sure about it. According to the BBC , she said:
‘I am convinced that if we have the necessary patience and endurance, if we do not let reversals get us down, if we consistently move towards a fiscal and stability union, if we actually complete the economic and currency union… then what I have always stated as our goal since the beginning of the crisis will come to pass’
What did you say? In that sentence, there are four ‘if’s: count ‘em. One, two, three, four. Talk about hedging.
If there are legions of traders, their fingers poised over the Sell button on their terminals in London, New York and Tokyo, what you do not do, what you absolutely do not do, is sound unsure. You do not if and you do not but. Because when you sound unsure, they sell. They sell, because they do not believe you and soon, the plunge becomes a self-fulfilling prophecy.
Unsurprisingly, the euro has touched an 11-month low.
Tony Blair understands this: he told the Wall Street Journal that governments had ‘a matter of weeks’ . Sadly, Angela Merkel, for whatever reason, despite the fact that you might intuitively expect parties of the right to understand this stuff, appears not to. Well she, and the other eurozone leaders, had better shape up: time is now very short indeed.
As they once used to say about a rather more important trans-European crisis: it could all be over by Christmas.

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