PARIS — The euro could be days away from collapsing, analysts warned Monday at the start of a critically busy money-raising week for eurozone countries. Markets surged anyway on hopes that European leaders, with their backs to the wall, are readying an overdue solution to the crisis.
In the run-up to the next European summit on Dec. 9, a raft of new ideas circulated on how Europe could once and for all cap the financial contagion that began in Greece two years ago and has now spread to bigger economies, notably Italy.
Among the ideas floated was a plan for the eurozone’s six triple A rated nations to pool their resources via a joint bond to provide assistance to some of the single currency bloc’s most indebted members and a fast-track move to a fiscal union between the 17 countries that Germany wants in return for its money.
Whatever materializes and however many denials, the euro project is in grave danger.
Evolution Securities economist Gary Jenkins said the series of government bond auctions this week “may determine the future of the EU.”
Financial Times columnist Wolfgang Munchau wrote Monday that the common currency “has 10 days at most” to avoid collapse.
The latest bout of turmoil to afflict the eurozone came last week after Germany failed to raise all the money it wanted in a bond auction and Italy had to pay through the roof to get investors to part with their cash.
If a busy bond schedule this week meets with an equally-poor reception, then the euro’s countries will be in real danger of being locked out of international markets and facing the devastating prospect of defaulting on their debts.
As governments nervously tap bond markets, Germany looks like it’s getting ready to ask its eurozone partners to back measures for a deeper fiscal union.
German Finance Minister Wolfgang Schaeuble said late Sunday that Germany is pushing the EU parliament to allow the 17 eurozone members to draw up treaties that would grant outside powers the right to reject national budgets in eurozone nations that breach EU regulations. Such a move would allow for stiffer new regulations to be enacted more swiftly.
“At the moment, we have a very low level of trust in the eurozone, that is our problem,” Schaeuble said in an interview with public broadcaster ARD. “We must now achieve what we failed to 10 years ago through a stability union.”
The prospect of a deeper fiscal union, where in effect Berlin will have a greater say on developments in Athens, Rome and Lisbon, has been greeted positively in the markets. But it’s likely to take a long time to come to fruition.
“We do seem to be moving slowly towards more of a fiscal union but at a pace that may result in all the components being put in place after a complete meltdown of the financial system,” Evolution Securities’ Jenkins said.
Many think the ECB is the only institution capable of calming frayed market nerves and German Chancellor Angela Merkel’s continued dismissal of a greater ECB role has frayed market nerves.
Potentially, the ECB has unlimited financial firepower through its ability to print money. However, Germany finds the idea of monetizing debts unappealing, warning that it lets the more profligate countries off the hook for their bad practices. In addition, it conjures up bad memories of hyperinflation in Germany in the 1920s.