"Looking at the original photo ops with former French President Sarkozy and Chancellor Merkel, it was evident to us from the start that the fundamental interests of France and Germany could never align. Now, with a new French President with his own limitations and political agenda, the situation is worse than before. At least former President Sarkozy and Chancellor Merkel had a cordial relationship; President Hollande, despite his having been trained at the Ėcole nationale d'administration, seems determined to establish a prickly relationship with Chancellor Merkel." (October 2012)Today's Wall Street Journal correctly focuses on the dynamic that we pointed out last Fall. They write,
"Mr. Hollande's success or failure to reach consensus with Ms. Merkel—without alienating his leftist majority in Parliament—is likely to have profound repercussions on the euro zone's future. There are widening concerns that France, Europe's second-largest economy behind Germany, risks becoming the next problem child."The European press tried valiantly to make a savior out of ECB President Mario Draghi.
"The turning point factor in the Spanish sovereign debt crisis has always been nailed as the July 26, 2012 policy statement by Draghi that “the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” What Mario again didn’t say was that his bank’s liquidity dropped by a staggering €72 billion in just four hours of that very same day. Amazingly, the next day Spanish bond yields fell sharply to 6.9% – and in response to that, the Madrid stock market forged ahead by 4%".
Again, last Fall we wrote that Draghi had no solutions for the Euro. Today, it's clear that whatever it takes will not be enough.
Unfortunately, politicians are sending their hitman economists out to turn the issue into a policy referendum between continued austerity and pseudo-Keynesian government stimulus. Continued austerity alone, with sky high Greek and Spanish unemployment rates, would impose continued suffering and crush national psyches without lasting benefit. Stimulus would benefit the chosen favored groups and achieve nothing. Fundamental labor market reform and reform of work rules needs to happen if things are ever to get better. Many European banks are pigs with lipstick on. A broom needs to sweep through the sovereign debt and banking system.
Europe badly needs someone with inspiring and credible, Churchillian rhetoric to talk about sacrifices that have to be made, by financial fat cats and by fat cat labor unions. Mario and Francois are soap opera actors who aren't up to the task.