Wednesday, 27 July 2011

A Lingering Death

The EU's latest 'rescue' of the Euro last Thursday hasn't even managed to appease the markets for a week:
The wave of relief in European markets that accompanied a new rescue plan for embattled euro zone governments appears to have mostly run its course, suggesting that investors are becoming more skeptical about the plan’s prospects for success.

But as investors examine the details of the package, too many questions remain unresolved, Martin van Vliet, an economist at ING Bank in Amsterdam, said.

The bailout package “was a huge leap for European politicians,” he said. “But it was a small step for the market.”

Unfortunately (for them) and rather predictably that 'huge political leap' is causing problems for Merkel:

GERMAN Chancellor Angela Merkel is facing a storm of protest at home after yielding to European Union calls for radical action to shore up Spain and Italy, raising doubts over her ability to implement the package.

The finance chair for the Free Democrats in the ruling coalition, Frank Schaffler, said the summit deal threatened ''the castration of Germany's Parliament'' by shifting budget power to Europe.

In the meantime Spanish and Italian bonds, are showing a negative market sentiment, as they continue to rise:

Fears that the Greek financial bailout could come unstuck and the eurozone crisis spread further across southern Europe rattled markets again on Tuesday.

Spain and Italy were forced to pay a higher price to sell short-term debt amid concerns that last week's Greek bailout had failed to solve the problems in the eurozone. Spain's short-term cost of borrowing hit three-year highs and demand fell at its Treasury bills auction, while yields at a sale of six-month Italian paper hit their highest since November 2008.

In short the rescue package is just delaying the inevitable, but instead of months or even a year, it now can't even do that. The Telegraph reports that all the rescue package has achieved is to buy enough time for Europe's officials to go on holiday during August:

The new Greek bail-out has bought Europe's officials a breathing space to go on holiday, but it won't last long beyond August argues Martin Vander Weyer.

"Well, at least they've all secured their August holidays," observed Sir John Gieve, the former deputy governor of the Bank of England on the Today programme.

It's very likely that the Euro crisis will be back with a vengeance in September and October and we'll have to go through the whole 'bailout' charade again. The Euro is finished but first we must suffer the long and lingering process of its demise.

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