Now that we entered the new decennium, we're still faced with some financing problems in the EU. This weeks auctions for government bonds of EU Member States are all in the news and the ECB keeps on repeating their mantra that they're only there for the small work (buying bonds as long as markets believe that that helps...) and that politicians are the only ones who can really face/solve the eurocrisis. So where do we stand with the political solution?
Essentially there is a deafening silence. China and Japan sooth the markets and EU by stating that they're ready to step in to buy EU bonds, but is that the solution that any politician would favour?
Basically all politicians are still fighting some old wars with partial solutions:
- focusing on limiting bonuses
- going for basel 3 and enhancements
- throwing in countercyclical buffers
- ensuring extra levys on banks with systemic risks
- making sure bond holders pay also when a bank fails.
The impact of the sum of the above political solutions on the market as a whole or on niches in the market is however unknown, less well understood but it remains in the end what matters. So what happens now is that politicians are steering the financial markets by looking in the rear view mirror and on ocassion some 5 working days ahead. They're putting the ECB in an awkward half political position and forcing the ECB to step out of its mandate to correct their own passiveness and ineffective behaviour.
We can only brace for impact now and hope that indeed there is some economic recovery that helps us in Europe out of the dip so that we can organise soft solutions in the coming years rather than make tough decisions right now. Yet, if politicians maintain their course on stiff and rigid rules for banks, there's not a lot of leeway and perspective on generating economic recovery and getting rid of the eurocrisis at all.
EU politicians essentially have to choose. If they want to save the euro, they need to postpone the international measures for banks just as many years as the US postponed introducing Basel 2. If they want both, they're ending up with badly financed EU-Member States, low revenue generating banks, no economic growth and a sell out of industries as well as EU-bonds to China.
My personal preference would be to postpone the generic scapegoating for banks so that they can be of help to recover from the crisis. Because right now politicians in Europe are really overshooting the post-crisis measures for banks in Europe, while undershooting the required measures for sustainable government finances. Which means that they are working towards creating a future where Europe is a museum with a lot of Chinese and Arab visitors.
UPDATE THURSDAY 13-morning: Apparantly the Spanish auction went well and there's relief all over the place. Also the Dutch Finance Minister announced that IMF may contribute to the EFSF fund some more. So there must be a lot of movement behind the screens to resolve the crisis. As for the amount to add to the fund... see the estimation of citigroup below:
UPDATE THURSDAY 13-afternoon: At the ECB press conference Q&A session this afternoon Trichet clearly outlines, in strong words that the ECB has delivered and will deliver its goal in Europe. He stresses that in fact it is up to the politicians to deliver the E of the EMU (stressing that he is delivering on the M). And he outlines that he finds the stability fund should be increased in terms of volume and use (quantity and quality).