The latest news from Europe is, as usual, not good. The weekend’s riots in Athens were significantly worse than expected, suggesting that the Greek political system is closer to a break point than many understood. Yet on examining the fine print of the latest Greek budget cuts, and taking note of a statement by the New Democracy leader Antonis Samaras that casts doubt on his commitment to the reform package, European leaders now seem to be saying that the deal isn’t done and Europe is not yet ready to commit the money for the second Greek bailout.For readers trying to decode signals from Europe, keep this in mind: for weeks now the EU leadership has been repeatedly telling the whole world that the Greek business was settled and resolved. Plainly, they’ve been either deceiving themselves or lying to the world — most probably it is a sad mix of both. But investors will protect themselves best in the future simply by discounting all confidence building statements from the EU.The [subscription required] Financial Times has consistently offered the best commentary of the European tale of woe; Gideon Rachman’s piece today [Germany Faces A Machine From Hell] reminded me of why I pony up the subscription price to keep this newspaper in my busy life. Writes Rachman:
The result is that the euro is in a dangerous and unstable position. The actions that are being urged on Germany are unreasonable. But Germany’s own solution – structural reform now, political union later – is unworkable.
And the close:
Behind the scenes, however, some of the brightest minds in the German government have a sense of deep foreboding. Twice in the past year I have found myself sitting next to different senior German officials at a dinner who have proceeded to tell me that the whole single currency was a terrible mistake. Speaking of the euro, one of my companions said: “It seems to me that we have invented a machine from hell that we cannot turn off.” The image was so bleak and Strangelovian that I laughed. But, I am afraid, it’s not really very funny.
Don’t be fooled. The European crisis isn’t over. The provision of essentially unlimited liquidity by the ECB, with backing from other central banks and especially our own Fed, means that we no longer worry on a day to day basis that the global financial system will explode. That is a good thing so far as it goes and temporarily at least it is worth about 3000 points on the Dow. But nothing has been solved; things are not getting better. The Europeans still have no clue what to do next, France and Germany are still divided, and the dysfunctional European governance system is still incapable of acting decisively even if the Europeans knew what to do.