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Another weekend, another set of 'solutions' for the Eurozone hammered out in Paris or Berlin. Not that we know the details yet - of course not.
This Eurozone situation is like 'Waiting for Godot' - Samuel Beckett's absurdist play. For it is now truly absurd.
We continue to head towards what looks increasingly like a road crash for the Eurozone and yet Europe's political leaders remain coy about the options on the table for their electorates.
The time for being coy really is over.
After weeks of caution from the UK on this issue - unwilling to be embroiled in a crisis made in continental Europe - you have to welcome UK Prime Minister's David Cameron's intervention in the Financial Times calling for 'decisive action'.
For as long as policymakers keep the potential solutions under their hats, markets will continue to make the solvency and liquidity situation even worse for EU sovereigns and our banks. All markets, investors and electorates now want is some clarity.
Last week in Brussels I attended the GFS News conference and it was clear from the IMF speakers they are losing patience with Brussels and its leaders. The world wants a roadmap for the Eurozone and soon.
Are we really now going to wait another month until the G20 in Cannes? Can we?
What amazes me in all this is that there seems to be no talk of a Plan B for Europe taking place.
The EU treaties' assumptions that there can be no rowing back on the nature of the Euro has created another fatal flaw in its design. The biggest flaw, of course, has been the lack of fiscal discipline and union over the past decade. A fatal lack of governance over the project from the EU Commission and European leaders.
Any household, any business small or large, needs to have a range of plans to cope with unfolding events.
The Commission should let it be known they have a Plan B for a two speed Europe - the so called loose:tight idea. This would have some states inside a federalised EU with fiscal union and the rest outside this framework. I think this would liberate many EU leaders to start to level with their electorates and create that firewall around the most problematic Eurozone areas we so desperately need.
But, afraid of some of the more irrelevant political effects right now, the EU superstructure does not appear to have Plan B for life beyond the Euro.
It should, and quickly.
Follow Iain Anderson on Twitter: www.twitter.com/IW_Anderson
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The problem this time around is that with governments already having committed so much money to the EU bailout fund to stop countries 'going under', will they be able to afford to prop up their banks (again)?
If not, then their problems are likely to be exacerbated by the Credit Rating Agencies, who by their downgrading of banks / countries if there's the slightest whiff of them not being able to stay afloat or service all their debts, will create a nasty positive feedback loop (harder for the country / bank to borrow, which will make it harder for them to service their debt, which will cause another downgrade which will make it harder to borrow etc.)
So hopefully at some point in time, the various politicians involved will pull their heads out of the proverbial sand and devise some credible contingency plans.
Meanwhile the EU keep throwing money at it in a desperate bid to keep it afloat, but there are already indications countries can't afford to donate much more to the bailout fund without putting their own economies in danger - especially as other EU economies (e.g. Ireland, Italy, Spain) are in a precarious position.
As Derek said earlier, a default would have widespread repercussions due to the number of banks with large scale exposure to Greek debt - it could trigger a crisis similar to that a few years ago when banks with large scale exposure to sub-prime mortgage loans (either directly or indirectly via the dubious practice of 'derivatives', which as I understand it were bundles of loans of varying risks packaged up and sold onto other financial institutions, some of which further bundled up multiple derivatives and sold those derivatives of derivatives on...) got into trouble.
Iain Anderson is right, there is no ‘Plan B’.
It seems that Sarkozy and Merkel simply plan to have a plan by mid November.
Let us look at the situation in simple terms.
Firstly it is now clear to all that Greece must default on its debts.
Secondly, the German and French banks have massive exposure to the Greek debt (as do British banks, although less so).
A Greek default will mean that those banks will be obliged to write off their Greek loans.
The banks involved are huge, - Deutsche Bank, BNP, Soc Gen for example; but if these banks take a major hit from the Greek default they will wobble, - seriously wobble.
Because these banks are “too big to fail”, the French and German governments will have to prop up them up.
Now the EU leaders must look for a way of doing two things. They must have contingency plans to provide additional capital to the endangered banks. Next they must look for ways of managing a “controlled default” by Greece, - possibly within the Euro although I doubt that would be possible.
I remain pessimistic because the performance of the EU leaders has so far been conspicuous by it’s massive incompetence. Perhaps now they will realise that they can no longer ‘paper over the cracks’ as they have done on so many occasions before.
Sincerely, Derek Lantin. http://dereklantin.booksabuzz.com