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Journalism of Courage
Last weekend,the finance ministers of Europe met and gave their countries a week to solve the eurozones problems. In advance of the heads-of-government meeting this coming weekend,however,some have already begun to dial back expectations. After all,the burden is enormous. Concerns about sovereign debt after Greeces fall have raised the possibility that even countries like Italy and Spain might find it tough to roll over debt,and move suddenly from illiquidity to insolvency. That would not just destroy them,but also the northern European banks that have invested heavily in southern Europe. There are few ways out of this: perhaps through buying Italian and Spanish bonds,to keep those governments afloat; or perhaps by recapitalising European banks,to ensure the contagion is contained,and they begin lending to each other again. But Europes leaders,as always,seem unable to commit fully to an agenda,held up by competing national interests,priorities,ideologies,and even egos.
The answers lie,as always,with France and Germany. France is looking weaker than ever today,its banks overextended and its triple-A rating under threat. Société Générale,Frances second largest bank,is particularly thinly capitalised. What this means is that a credible commitment to help secure Spain and Italy,and the banking system,would strain French finances. And presiding over a rating downgrade of the proud Fifth Republic would be political suicide,and Nicolas Sarkozy knows it. So expanding the stabilisation fund enough to end the crisis seems unlikely,and Europe is thus left chasing odder methods.
