by Stephen Lendman
Since crisis conditions erupted, it’s number 19 and counting. Like earlier summits, they met. They talked. They agreed to talk more. They accomplished little more than before.
Dozens of rescue packages preceded Friday’s. Promises are made and broken. Hyped plans failed. Conditions are worse now than ever.
Reality belies morning headlines. An official statement left important details unanswered. It was long on political posturing, not real solutions.
On June 29, Bloomberg headlined “EU Leaders Ease Debt-Crisis Rules on Spain,” saying:
Bailout conditions were relaxed. Seventeen Eurozone country leaders met in Brussels. Talks continued until 4:30AM.
Most often decisions are agreed in advance. Maybe they stayed up all night partying.
A requirement that taxpayers get preferred creditor status on aid to Spain’s insolvent banks was dropped. European stocks and bonds surged. So did the euro. Expect euphoria to be short-lived. It happened each time before.
Talk of a major breakthrough was morning headline hype. Independent analysts forecast hard times getting harder. So-called rescue funds provide a fraction of what’s needed.
At issue are two rescue schemes – the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).
Combined they have about 500 euros. EFSF exhausted most of its resources. It needs infusion help to replenish it.
The late Bob Chapman said around $6 trillion is needed for troubled Eurozone countries. What’s proposed is a drop in the bucket. Moreover, the longer real solutions are avoided, the worse crisis conditions get, and greater eventual trouble.
Chapman said things festered so long unresolved that an eventual train wreck is virtually certain. He estimated a timeframe from 2012 – 2017.
ESM was originally scheduled to take effect July 1. Germany’s parliament was still debating it. Chancellor Angela Merkel rushed back from Brussels to smooth passage.
Germany’s Constitutional Court has final say. Expect weeks perhaps, not days, for a ruling. Law Professor Daniel Thym thinks approval will come with demands “to ensure that the upper and lower houses of parliament are sufficiently involved.”
However, the Court could link ESM and fiscal pact approval to constitutional law change. Doing so would require Germany’s first post-war national referendum.
Germany’s High Court is very leery of surrendering sovereign rights to Brussels. At the least, it may demand constitutional change. At issue is possible political and fiscal union.
Germans with long memories know how Hitler manipulated plebiscites to seize power. Key is not repeating past mistakes. Nonetheless, Finance Minister Wolfgang Schaeuble thinks a referendum may be needed sooner than most think.
Historian Heinrich August Winkler said:
“Just a few months ago, few people thought we could be on the brink of a referendum on changing the German constitution.”
“Now there is a chance that the Constitutional Court could demand just that, possibly even linking it to approval of the ESM and Fiscal Compact.”
Holding one could become a central issue ahead of 2013 elections. Debate could split Merkel’s coalition government.
Winkler added that “pro-European parties have strong arguments.” They could win over most Germans, but not without intense debate.
According to Phoenix Capital Research, morning headlines falsely called Brussels’ announcement a game-changer.
Bailout funds don’t subordinate private debt holdings. They don’t change the more critical issue of stopping defaults from happening.
What’s proposed doesn’t say “where the money is going to come from.” EFSF and ESM rescue mechanisms are one thing. More important is who’ll fund them and how.
All Eurozone countries are supposed to contribute. Italy and Spain (Euroland’s third and fourth largest economies) are supposed to provide 30% of funding. How can they and other troubled economies needing bailouts?
Moreover, ESM so far doesn’t exist. Only four of 17 Eurozone countries approved it.
Phoenix Capital said “(y)ou couldn’t make this stuff up if you tried.”
In addition, no agreement was reached to increase EFSF or ESM funding. Why is simple. Countries don’t have the resources.
According to Phoenix Capital:
“No one seems to be listening: Europe is out of buyers. End of story. There simply isn’t €500 billion lying around to be put to use. That’s why the ESM and EFSF aren’t being increased in size. They couldn’t be.”
Especially key is that the ECB will use bailout funds to recapitalized troubled banks. They’ll be hurt, not helped, like firms using LTRO (Long Term Refinancing Operation) capital “found themselves severely punished in the credit and bond markets.”
In addition, nothing agreed on takes effect until yearend. No guarantees exist that troubled Eurozone economies won’t collapse before then.
Expect market euphoria to be short-lived. Decisions reached don’t address unresolved core issues. Insolvency, high debt levels, and speculative excesses remain troubling.
Europe needs solutions, not hype and short-term fixes. They’re largely repackaged old schemes. They didn’t work before and won’t now.
They’re offered when Greece is bankrupt. Spain is crumbling. Enough resources aren’t available to help. Portugal and Ireland are sinking, Cyprus just became the fifth bailout nation, and Italy isn’t far behind others.
Once post-summit euphoria ebbs, markets will realize vague policy pronouncements offer less than hoped for. Fighting fires substituted for workable solutions. At best, more time was bought. How much remains to be seen.
Global decline continues and spreads. Around 80% of world economies show visible deterioration. Celebration isn’t called for. Nothing announced pre-dawn Friday changed things. Words don’t substitute for solutions.
Financial Times contributor Gavyn Davies headlined “More questions than answers after the summit,” saying:
Summit leaders “affirm(ing) that it is imperative to break the vicious cycle between banks and sovereigns” isn’t accomplished by putting rancid wine in new bottles.
The devil is in the details of all proposals. Bad ones will bedevil troubled banks and sovereigns they’re meant to help.
Summit leaders largely repackaged old schemes. Details remain obscure. Europe is short of funds to continue bailouts.
What’s ahead looks grim. Smart money has been saying this all along.
Stephen Lendman lives in Chicago and can be reached at email@example.com.
His new book is titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War”
Visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.