The eurozone crisis: a terrifying race to become a diminished world power

From The Guardian UK:

To see off the bond markets, the eurozone has to create a credible sovereign – but that may divide the larger EU
, Wednesday 7 December 2011

Europe will not be saved in Brussels this Friday. At best, it will live to face another trauma. After these “10 days to save the euro” there will be 10 weeks, 10 months, 10 years. What one Brussels observer describes as Europe’s “terrifying and boring” crisis will run and run. Angela Merkel compares saving the eurozone to a marathon; actually it’s more like a cross-country obstacle race, with a large new water-jump over every false horizon.

First, there is the immediate question of whether eurozone governments can win back the confidence of the markets. How difficult that will be is shown by the fact that, on the very day Merkel and Nicolas Sarkozy announced how they were (once again) definitively going to save the eurozone, Standard & Poor’s put even Germany’s AAA credit rating on a negative watch.

A bond market analyst explains to me how, once the fundamental confidence of investors is undermined, the whole calculus is changed. Then it is no longer about price. Company X or country Y can offer yields of 5%, 6%, 7%, 8% – the investors just don’t want to be there. Eurozone countries such as Italy need to borrow large sums early next year and the markets – those aggregators of individual greed and panic – may again say no. Then we’ll have another “10 days to save the euro“.

Next, there’s the question of what mix of fiscal union, greater European Central Bank (ECB) intervention and German guarantees for at least some of other eurozone countries’ debt (eurobonds, stability bonds, debt mutualisation, choose your own term) will calm the markets for a longer period – and whether the slow-grinding wheels of EU politics can get there fast enough.

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