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EU “Fab Four” Meet and Fail in Rome

The euro is significantly closer to failure and Europe is closer to a meltdown after the leaders of the four biggest eurozone leaders met in Rome and made no progress whatever. The “Fab Four” (Spain’s Mariano Rajoy, France’s Francois Hollande, Germany’s Angela Merkel and Italy’s Mario Monti) reaffirmed a pre-existing agreement to make some mostly symbolic adjustments to European policy, whomping up an air souffle that the Club Med countries plus France can claim is a “growth” package, but it is mostly made of old money and spin.

Other than that, they seem to have just wasted time repeating the stale old things they have been saying to one another for more than two years. The Latin caucus told Germany how very nice it would be if Germany would pay more money to reduce their borrowing costs and Germany thanked the Latins for the advice but declined to share its ATM card and PIN with its hungry friends.

In other words, nothing.

This meeting was supposed to lay the groundwork for the EU summit next week at which the European master plan for fiscal and political union is, we are told, to be decided. More and more observers are beginning to think that this next summit could be a turning point; Italian Prime Minister Mario Monti could face a parliamentary rebellion if he comes back from the summit without an agreement that reduces the ruinous interest rates Italy must pay on its huge national debt.

If Monti’s government falls, former Prime Minister Silvio Berlusconi appears ready to seek power on a program of taking Italy out of the eurozone. The unraveling would likely be very fast at that point and few Italian politicians would stand by Monti, austerity and the euro.

In Rome today the “Fab Four” looked disorganized and off-balance. They did not look like seasoned operators engaged in a high stakes game of chicken in which each of them knew the odds, had a plan, and was moving with grim purpose toward an endgame. They looked a little dazed and overmatched, worried about the direction in which things were drifting, but not knowing quite how to turn things around. It was uncomfortably similar to the bewilderment European diplomats showed in July of 1914 as a spat between Vienna and Belgrade slowly morphed into a great European catastrophe.

We hope this impression is misleading; by the end of the month we may know.  Chancellor Merkel left early to watch the German national soccer team’s match against Greece.

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  • Snorri Godhi

    If Berlusconi, or anybody else for that matter, managed to get to power “on a program of taking Italy out of the eurozone” then I’d be very surprised. It is extremely difficult to find Italians who believe that there are such things as “competitive” devaluations, or any other such Keynesian nonsense. One has to grow up speaking English to believe in it.
    Interestingly, it is native English speakers who project their Keynesian beliefs onto the Italians and Greeks: the latter seem to find completely different rationalizations for whatever might appear Keynesian to an anglophone.

    The above paragraph is meant to set up another opportunity for me to say: I told you so; but if I am proven wrong, ie if somebody gains power in Italy, say within the next 5 years, *_thanks to_* a platform of taking Italy out of the eurozone, then I’ll say: I was wrong and you were right.

    Also, I don’t see how any agreement at the EU summit next week could possibly reduce interest rates on Italian treasuries: only Monti cutting spending and deregulating can achieve that … if the Italians let him.

  • Charles R. Williams

    Wise move on Merkel’s part. There is no fix for the eurozone problem without Germany assuming all eurozone debts. Should the Germans take responsibility, the eurozone will either adopt profound structural reforms or the eurozone as a whole will go under in a very few years.

    There is no political support for Germany to pick up the tab for French workers retiring at 60. Nor is there political support in France, Italy, Spain, etc. for the structural reforms.

    This being the case, they should all follow Angela Merkel’s example – relax, have a beer and watch a soccer game. Then they should go home and get to work insulating their economies as best they can from the inevitable eurozone collapse, concentrating on unraveling the mess in the financial sector. When all is said and done, Germany will pay a huge price for the euro fiasco, but this is truly a sunk cost. They key to limiting the damage is to recognize the losses. If some nations will be forced to leave the euro, it matters greatly how this complex task is managed.

  • Lorenz Gude

    I’m not sure that the Euros give a rat’s for President Obama’s election chances. So things may come to a head before November and effect the American elections directly. Still, I think that most American voters are acutely aware that Eurofail will impact the US economy. I just don’t see Europe being able to decisively move to political union quickly enough to avert the looming economic disaster.

  • Medelsvensson

    What Europe is going through is what is evolving in the US — they are the leaders, and we are blithely following. What is at the heart of the Eurocrisis is the inability of modern democracies to deal with entrenched special interests — welfare state, public employees, unions, protected professional groups, farmers. Subsidies and special rewards are killing the economies of most of Europe, and the repeated financial crises are just symptoms of the failures of politics in many nations. This crisis of democracy is now on its way to the US. Only our greater federalism can possibly stop it, through our separate States competing for growth and prosperity. We may possibly be saved, but I would not bet on it. We are drifting, slowly but inevitably, down a political abyss.

  • J.P.

    This is a harbinger of calamity. The European Union was the last best hope of employment for tens of thousands of elite drones. (After all, Europe already had plenty of serviceable governments.) Imagine the chaos we will face when hordes of the miseducated are deprived of their worthless sinecures. Oh, the humanity!

  • teapartydoc

    Adjusting the drapes is hardly an appropriate response when confronted with a burning house.

  • Don Surber

    A lot was accomplished. Germany told the mooches no. It is not in the interest in any of Germans to save the euro. Why would Germany prop up a currency whose inflated price would harm its exports? The end of the euro is good news for the world, although we may have a little recession. I opposed the bailout of banks and GM — why would I want a bailout of Italy, Spain or the rest of the PIIGS?

  • Mark in Texas

    The most immediate effect that I would expect from a Eurozone melt down would be that the value of the US dollar would rise substantially in value, at least in the short term. This would be tough on our exporters and would give additional incentive to outsource more jobs from the United States.

    On the other hand, gasoline will get a lot cheaper.

    So figuring that it takes a while to move jobs overseas and that high unemployment is already baked into the cake for the November election, the Obama Administration might think that the Latin countries pulling out of the Euro within the next few months would work to their advantage and they might want to nudge things in that direction, figuring that gas prices less than $3.00 a gallon would help them at the polls.

  • MarkInFlorida

    For over two years these idiots have been meeting every month saying it was their last chance to save the Euro, but all they do is kick the can down the road to the next emergency meeting. Kill it already. Mercy killing. The math doesn’t work. There is no money to pay all your bills.

    (Funny how similar this is to all the meetings they had in the 1920s trying to figure out how to get Germany to pay war reparations which it couldn’t afford. History does rhyme. Hope it ends different this time…)

  • econrob

    Wow, it is just amazing how otherwise bright people think there is a political solution to a non-political problem. The crisis in Europe is pure math. There is no political solution that works.

  • Rick in MA

    …where she seemed to be surprised at being booed by the Greek end of the stadium!

  • Bill Hocter

    European master plan=Son of “Big Bazooka”. Wonder what’s next in this genealogy of failure?

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