Euro talks: The last signal before the storm?

Herman Van Rompuy Can Herman Van Rompuy set the euro agenda?

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"At the very end of our dinner I propose we discuss recent developments in the eurozone."

So wrote Herman Van Rompuy in the last paragraph of a long and detailed letter of invitation spelling out the agenda for tonight's informal Euro summit. There's been much ribaldry about Van Rompuy's missive: as if it embodies the very lack of focus, the bureaucratism and awareness-free bubble in which the elite of Europe are trapped.

I read it differently. Van Rompuy had just sat through a G8 summit at which it was clear German intransigence - on both the short and long-term issues that are collapsing the euro - had been demonstrated, isolated but not overcome. This in a room containing Barack Obama, Yevgeny Medvedev and David Cameron. In the polls that followed, the wielder of German intransigence, Angela Merkel, scored her highest ever approval rating with German voters.

What this means - and I think Van Rompuy was making a public signal in his derided letter - is that there is nothing the Euro leaders can do.

To prevent a catastrophe in Greece (as defined by them) they have to give the mainstream parties, New Democracy (ND) and Pasok, enough concessions on the austerity package that they win back voters from the anti-austerity left and right.

It's not just a question of scraping a majority, using the quaint Greek rule that hands 50 extra MPs to the first party: to make its own version of austerity work, ND would have to wage class war against the voting base of Pasok. In any case, as the rest of southern Europe stagnates, and the credit crunch tightens, the dynamics of Greek growth and debt do not look positive.

Francois Hollande, according to Pasok leader Evangelos Venizelos, has offered the possibility of a three year extension to the austerity targets. For that to be a valid offer, it has to pass the EU, the ECB and the IMF in short order and be put in writing. If we come out of tonight's dinner and Merkel has said the German equivalent of "yeah, whatever, lets give that some thought, thanks-bye", then there are few other forums through which such a decision on forbearance could be made.

Meanwhile, the market focus has turned to Italy and Spain. There is clearly a slow run on Greek deposits. Whatever the official stats say, one person whose job it is to monitor the ATMs of Europe told me there had been a "marked increase in cash withdrawals" from Greek banks starting 10 days ago.

The flags of Spain and Greece wave behind a statue holding the symbol of the euro Is someone going to stand up and find a resolution to the euro crisis?

As I've written before, this has the ability, on any given day, to provoke a drain of liquidity from the Greek banking system, forcing the Bank of Greece to ask for levels of Emergency Liquidity Assistance that the ECB just cannot countenance. Before or after the vote it could easily be the trigger for technical Greek suspension from the Eurosystem.

Numerous market participants have told me that it is fear of that being the trigger - the detonator more like - of the unexploded mass of bad debt in Spain that is haunting them.

Once Greece goes, most analyses of the exit process say it will be painful but containable, as long as it does not spread. But if non-eurozone investors decide to pull the three trillion euros in sovereign, corporate debt and equity investments from Italy and France - or even a part of it - that would spark a crisis on a scale likely to draw in the banks of non-crisis countries: Germany, France and the United Kingdom.

In the absence of a real firewall to contain Italy and Spain, investors are constructing their own firewalls: banks backing exposures in stricken countries with deposits from those countries; corporates looking to issue debt effectively denominated in "Spanish euros" in order to hedge against the losses contingent on a collapse there. Analysts are calling it de-euro-isation and it's happening, even if only for now as a temporary defence mechanism.

For the Greek left, which the polls show has a decent chance of winning the election now, there are powerful cards to play. Paradoxically, the very effect of the austerity they oppose has been to reduce the Greek deficit to a point where - if Syriza's demand for a moratorium on interest payments were to happen - they could balance their books. This, say experts, is a danger point for all creditors: where the bad debtor reaches a point where they are no longer in a panicked free-fall. Where they can see light at the end of the tunnel if only the terms of repayment could be renegotiated.

In the past two years I've written blog after blog warning that the crisis would spill out of control. I am almost sick of analysis now: there is no joy to be taken from the befuddlement of politicians whose only instinct is to preserve the broken system they've grown up with.

What's clear is that Europe must act. A strategic commitment to fiscal union is one thing. A tactical plan to provide liquidity to the banks through further non-textbook measures at the ECB, respite to the Greek people, a fully-funded firewall of real money to throw at Spain, whether it wishes to be bailed out or not, and probably a pan-EU deposit guarantee (yes, involving the Brits and Danes and Poles guaranteeing the bank accounts of Greeks and Cypriots): this is what's on the table.

If you want a vision of what happens if they umm and ahh and eat Belgian chocolates from here through 17 June, witness last night's events in Patras - footage of which can be seen on Youtube. The far right party Golden Dawn sent six coach loads of its members to attack a migrant camp in Patras, clashing with riot police in front of the horrified Greek media. The same party has 19 MPs.

I know that camp well. Earlier this year I spoke to migrants there, trapped for months under the Dublin II treaty in a city that's coming to hate them. One of them said: "This is not Europe: I've been to Europe and this is not Europe." In a continent where aggregate levels of debt and deficit are still not high; where social cohesion is a way of life and where tolerance is written into the constitution, that's an indictment. Not of the economics but of the politics and politicians.

That's what makes tonight's meeting important: it is "informal" and it's calling notice was stuffed with ephemera. But it could send a signal of decisiveness: of a clear agenda and a crisp tempo of decisions upcoming. If it sends a signal of cluelessness, it's probably the last signal it will send before the crisis hits.

Paul Mason Article written by Paul Mason Paul Mason Former economics editor, Newsnight

End of an era

After 12 years on Newsnight, Economics editor Paul Mason has moved on to pastures new and this blog is now closed.

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  • rate this

    Comment number 35.

    According to Zerohedge the term 'bank run' has just peaked in Google searches above the 2008/09 levels.

  • rate this

    Comment number 34.

    Angela Merkel's "highest ever approval rating" in Germany

    It falls to Angela Merkel at least to offer Germans the chance top lead Europe

    NOT to continue funding corruption & folly in Greece or anywhere else

    RATHER to offer Full Democracy with Full Employment

    FULL OUTPUT to be shared equally by all, free from Fear & Greed

    Euro-Capital investment to become 'agreed rational'

    No more of fiasco

  • rate this

    Comment number 33.

    There is not much point in analyzing this situation further; EU must stop talking and implement FISCAL UNION, which means Eurobonds, which means Germany must come on board.

  • rate this

    Comment number 32.

    tawse @15

    Even worse: BBC2 last night "Fall of Singapore: The Great Betrayal"

    Unthinkable disaster, the 'British promotion' of war in Far East, at horrific cost to so many, the people of Japan, China, Malaya, Burma, USA… and more, as well as UK personnel

    Many relevant lessons, not least of 'frozen faculties' in protection of self, party & class?

    Politicians 'running on rails'

  • rate this

    Comment number 31.

    Dire economic news today from Europe, UK and China but the stock markets, silver, gold all soar in price!

    You know what, if Greece leaves the Euro I think the banksters will say that a Greek default has already been priced into the stock market!

    The 1% flourish no matter what.

  • rate this

    Comment number 30.


    The choice is simple: Schumpeter's periodic 'creative destruction' of human beings or a revolution whereby the people take direct democractic control of the means of production.
    No more crises of overproduction & a chance to reverse the ecological damage.

  • rate this

    Comment number 29.


    Still the Keynesian faith in creating value out of thin air!
    An economics based upon a subjectivist concept of value, with no explanation of profit, that has to explain crises as some kind of psychological fault.
    It was the depression of the 1930's along with WWII that destroyed so much capital & so restored profit rates for the post-war boom - nothing to do with Keynesian economics.

  • rate this

    Comment number 28.

    SF sees storm passing (comment blocked)

    Sees solution in Germany MORE unequal, raising German wages to make 'less competitive', allowing other well-capitalised centrally-situated states to compete

    A kind of anti-austerity for today, sucking-in imports, driving away investment, in hope that imports will be from EZ-periphery in receipt of diverted investment?

    Why not just make friends? Be equal

  • rate this

    Comment number 27.

    The imposition of punitive austerity quite apart from considering its lack of effectiveness in reducing the deficit and the debt is only possible if the sons of Colonels return. The Eurozone must find a way of dealing with the Greek economy with at least some basic fairness and consensus. With friends like these Greece does not need enemies.

  • rate this

    Comment number 26.

    #24 they are very sensitive about what and whom eat what last night whether democracy works etc

  • Comment number 25.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 24.

    I don't know who represented the Greeks at the meeting last night but it would have been good if he or she had refused to eat in disgust at the hunger of his/her fellow Greeks.

    Oops, sorry - politicians. They look after number one don't they.

  • rate this

    Comment number 23.

    They marched us up to the top of the hill... and they marched us down again..

    OK, so the EU leaders like to have a good nosh up in Brussels and pick some truffles up in duty free on the way home. I mean, how much longer can they keep having these meetings and nothing is decided?

    Do you think the soup kitchens of Athens crossed any of their minds whilst they were stuffing their faces?

  • rate this

    Comment number 22.

    "at which it was clear German intransigence"

    that should read Freec,spain,italy and france to reform there economies such that the state is not in control of the awarding of more that half of GDP to "favoured" areas thus gaining support from the voters. Which leads to corruptin and poor economic performance. An exapmle is EFA(UK,GER,SPN,ITY and Rafaele (FRC)

  • rate this

    Comment number 21.

    'If it sends a signal of cluelessness, it's probably the last signal it will send before the crisis hits'

    Nothing seemed to come out of this meeting - everything put off til next time, at the earliest.

    Does that make it decisively indecisive? Will everyone now have to watch the EZ unravel, with contagion of crises from one country to another?

  • rate this

    Comment number 20.

    They won't take action Paul. I think we all know that. Could start to see the beginning of the "chaotic" phase soon.

    As a side note from Aus, mining here is not slowing down but just very recently investment in DESIGN of several huge mine infrastructure schemes have been delayed until October very suddenly. Not stopped, but a strategic hold point has been ordered...watching... Waiting...

  • rate this

    Comment number 19.


    I can't help admiring Frau Merkel's faith or is it the knowledge that the Deutsch Volk would never forgive her if she surrendered. However one interprets the situation the lady has more backbone than any of the others. Perhaps this says a lot about the modern Germany: they don't elect dangerous nutters who spend money that hasn't been earned first. A good principle we all need to emulate..

  • rate this

    Comment number 18.

    Greeks on the way out of the euro. Spain's banks are even 'buster' than the other zombies. Portugal and Ireland need more bailouts soon. Eurozone shambles together only by inertia and paralysis. Despite much-vaunted 'political will' of the eurocrats, this project is about to unravel and surprisingly quickly. Get your cash into solid assets: gold, silver, unmortgaged property, art, etc.

  • rate this

    Comment number 17.

    Nick Clegg: "no rational person" supports a Greek Euro exit. But to will the end you must will the means, and Frau M in particular is clinging to her economic faith in the face of all the evidence:

  • rate this

    Comment number 16.

    Greece could act as a firewall for the rest of the Eurozone, but the quid pro quo would have to be that they default on debt/bailouts while staying in the Euro. Or, they can leave and default. Either way, that money has already gone, so politicians moaning about Greece sticking to their agreements is entirely irrelevant.
    Doing nothing, like the past few years, will no longer work. Time to wake up!


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