New Threat To Europe – Divisions Between the Players – Germany, ECB, EU,

Weren’t the Old Threats Good Enough?

In any multi-player crisis the first phase is a coming together of the various parties.  In the early stages of the problem the individual groups charged with finding the solution will take a “let’s do this together” approach.  If the crisis is averted or the problem solved, the individual groups will take a few minutes to congratulate themselves, discuss how further co-operation in the future can solve even more problems and then move on to other things.

If the initial steps to solve the crisis do not work then the co-operation and coordination among the various actors starts to unravel.  Patience is no longer in abundant supply and in economic issue the politics of the individual parties start to play a larger role.  In many cases the search for a solution gives way to the search for someone to blame the failures on, and  the efforts of individuals turn towards salvaging their own reputations rather than salvaging the situation.

Such is the case with the European crisis.  Early this year the continent united in a strong but wrong policy towards Greece.  Now the “wrong” part is becoming evident, although only to those not involved in implementing policy.  They still have the “wrong” part right.  As Spain and Italy, two countries whose size is such that their economic collapse could severely impact all of Europe stumble towards a financial, fiscal, and economic catastrophe, Europe’s once cohesive coalitions are beginning to dissolve.

Fresh Worries About Europe Shake Global Stock Markets

By LIZ ALDERMAN 2 minutes ago

"Fears of a deepening sovereign debt crisis in Europe slammed global markets again Monday, battering the shares of French banks and firms in other European countries"

Consider these events.

1. The European Central Bank (ECB) which is a partial equivalent to the Federal Reserve in the U. S. began a problem of buying Italian and Spanish debt in order to reduce pressure on the interest rates of those countries.  That worked, at least temporarily but it has left the ECB as a major creditor for Italy and Spain.  The ECB is now intricately involved in the economics of these two countries as a major creditor.

2. Opposition to this policy caused Germany’s representative on the ECB to quit on Friday.  This rocked European financial markets and the carnage is continuing.

3. The policy of austerity for Europe’s troubled economies is not working. 

Comments by German Economy Minister Philipp Rösler added to the sombre mood, after he was reported as saying Europe could no longer rule out an "orderly default" for Greece as it struggles with a crippling debt crisis.

And

Meanwhile, a surge in Italy's borrowing costs served as further proof that investors are running scared from euro-zone debt troubles

4. The head of the ECB, Jean Claude Trichet has taken to the airways to proclaim how great his stewardship has been, “absolutely impeccable” is the term he is using.  Confirmation of this assessment has not been forthcoming.

In Greece the austerity program is threatening to create even more havoc and destruction, Italy’s government is implementing an austerity program that will create further divisions in an already fragmented Italian society, the German government’s ruling coalition continues to lose elections and authority, Spain is waiting on a new government after elections later this fall, the EU’s requirement of unanimous consent for action is about to paralyze it and France, the other big economy is contracting its economy in an attempt to solve budget woes.

The good news, nobody in Europe seems ready to send an army across national borders, you know, the way they used to solve these problems in the old days. 

The other good news, while things are bad today and worse than they were yesterday, they are not as bad as they are going to be tomorrow.  Ok, not really good news but given the situation that is about the best one can do.