This EU summit scheduled for tomorrow (yes, just add that to the calendar with the Supreme Court ruling and the Holder contempt vote) has all the earmarks of a disaster. First, technocrats released a sovereignty-destroying proposal that would combine all of the worst elements of a fiscal union, not solving the growth imbalance problem while practically mandating austerity from the top, stripping authority from the elected representatives of the various countries.
When the predictably bad reviews on that came in, Herman van Rompuy of the European Council scaled back the plan. A lot of this became moot when German Chancellor Angela Merkel forcefully resisted any notion of Eurozone debt sharing, which was the bone tossed out to the weaker countries in exchange for giving up their sovereignty. As a result, Italian Prime Minister Mario Monti, himself basically installed by the EU leadership, threatened to resign in a speech lashing out at Germany:
Italy’s technocratic prime minister’s frustration with Germany surfaced in a combative speech to parliament, saying he would not go to Brussels to “rubber-stamp” pre-written documents and was ready to extend the two-day summit until Sunday night if needed to reach agreements before markets reopen on Monday.
Speculation over the fate of his government has become so feverish in Rome that officials were forced to deny that the prime minister had threatened to resign if he were to leave Brussels without success.
Singling out Jens Weidmann by name, Mr Monti said the Bundesbank president had “badly misunderstood” his proposal to deploy eurozone rescue funds to bring down the borrowing costs of countries such as Italy and Spain that had honoured obligations to implement reforms and bring down their budget deficits.
This is all tied up with roiling Italian politics and a possible comeback, believe it or not, from disgraced former PM Silvio Berlusconi, who has re-imagined himself as a Euroskeptic. Berlusconi’s party has the votes to stop Monti at basically any time, forcing new elections. In addition, Italian borrowing costs have continued to rise (along with Spain, which is saying they cannot finance themselves at current rates). A bad EU summit may be the pretext needed for Berlusconi’s party to break from the Monti coalition and call new elections. This explains why Monti is battling so hard.
And now French interest rates have started to rise, and the German economy has started to slow down. So basically, the biggest countries in the Eurozone are feeling the effects of disastrous policy, yet cannot see their way clear to agreeing to right the ship.
No wonder the euro has flattened today. Merkel and French President Francois Hollande will meet today to try and salvage something of a pre-summit game plan. But expecting nothing has been a good bet of late.
At least Greece has a new finance minister. The first one took a look at the books and collapsed on his first day in office.