- The European monetary system still has fundamental design and execution flaws that make it unstable in most environments;
- It offers peripheral members few real benefits except access to easy credit;
- Unless the peripheral countries undertake real economic reforms, the austerity medicine may make the patient better, if it hasn't killed him first;
- French, European and Italian banks need to take their medicine and acknowledge the diminished economic values of sovereign debt on their balance sheets;
- The continuing struggle for EU power between France and Germany is very analogous to the struggle between our two sides in Congress. Despite all the nice rhetoric and the ECB posturing, their divergent interests still limit the effectiveness of the monetary union.
"While some borrowers (global multinationals) are benefiting from ultralow or even negative interest rates, it does not appear that the easy money is reaching the struggling businesses in countries like Spain and Portugal that need it most. That is why the European Central Bank may still need to do more to unlock credit to those countries and avert deflation, a ruinous downward price spiral."The peripheral countries have gained little from trying to please the ECB, which they thought in turn would please private lenders, who in turn would give them easy credit to continue business as usual. There has been no benefit to the peripheral countries dancing with the ECB and the IMF, but they really do need to sit down, perhaps directly, with private, non-bank lenders and have a serious conversation about regulatory, tax and fiscal reforms that would generate capital on the appropriate terms. Continuing to believe in the ineffective European experiment as it is will only generate political turmoil in the periphery.
Meanwhile, in Poland and in the Czech Republic, there are outside investors who are noting manufacturing capabilities, trained workforces, and an openness to foreign trade. There are some shoots of spring in these economies, but not because of any ECB experiments.
Some of the banks have had bombs go off in the basement, and no amount of ECB regulation and oversight saw any of it coming. Banco Espirito Santo is the laughable example, with Credit Suisse and Goldman Sachs having their eyebrows singed by the opaque structure.
France appears to be acting like a patient with congestive heart failure, still alive and moving around, but seemingly incapable of rising to its domestic economic and foreign policy responsibilities. This leaves Germany as the strong voice, for the moment. Don't expect Mr. Draghi to produce anything useful apart from press releases for the current economic crisis.