One of the odd things about the European Union and the creation of the Eurodollar was the implicit assumption that all member countries would behave in a fiscally responsible manner and would even subject themselves to a set of covenants ostensibly designed to make sure that no single member would debauch their currency. Now that some of the EU members have been found to be the fiscal philanderers many suspected them to be, the whole arrangement seems to be falling apart. Via The Market Ticker comes news that all is not well with Team EU.
European Union finance ministers meeting to consider ways to prevent the Greek debt crisis from spreading across Europe have hit a roadblock, with Britain announcing they will refuse to underwrite a bailout fund worth some $60 billion.
EU leaders are worried that financial markets will continue to lack confidence in countries with high deficits.
Officials and diplomats in Brussels hope that a stabilization mechanism will calm the international markets’ fears about default in Europe.
But the loan guarantees are too much for the UK to swallow, and the UK Treasury will have nothing to do with them. Without the UK onboard the package looks pretty thin.
Political acceptance from European countries is critical, but British officials say that the stabilization mechanism is something old, that is already been used to help Hungary, Latvia and Romania , and something new – a set of potentially huge loan guarantees.
German PM Angela Merkel has a similar problem. MarketWatch frames Merkel’s dilemma this way:
The election in North Rhine-Westphalia, Germany’s most populous state, was the first electoral test for Merkel since she was re-elected last September.
The results reflect public anger over the bailout for Greece at a time when local governments in Germany are struggling with severe budget shortfalls.
Get used to hearing that sort of message both here and abroad. Skeptics of the EU have doubted from its inception that one sovereign nation would debauch its currency to prevent another sovereign nation crisis. Denninger points out the obvious:
That, in turn, means that it is very likely that Germany has provided the last support it is going to be “contributing” (more accurately, being extorted from German citizens at gunpoint) to Euro “stability” as well.
Here comes the fun folks, pretty much exactly as I expected.
Anyone want odds on the Germans returning to the Deutchemark?
This is all so interesting because it is a precursor to the drama I suspect awaits the American taxpayer when they find out that the fiscally responsible state they reside in may be called upon to bail out the fiscally irresponsible state next door. There are enough states rights advocates in this country to raise some serious hell about this if it comes to pass. As the EU disintegrates into chaos Americans will undoubtedly draw the same parallels even as a “hear no evil, see no evil” establishment media tries to ignore the story. This is going to be quite a show over there and over here.