No Solution in EuropeBy Bert Dohmen
Wednesday, August 17th, 2011
GERMANY and FRANCE PUNT!
NOT EVEN A HINT OF SOLUTION
In Europe, another week means another meeting on the EU crisis.
Merkel of Germany and Sarkozy of France are meeting today. There was an announcement in the morning that they creation of Eurobonds was not “officially” on the table. After their meeting, we found out that apparently nothing was accomplished.
Merkel said that issuance of a Eurobond would not solve the current European crisis. In my view, that is a big mistake. I believe it is the only solution, at least for the intermediate term, for Europe. There is no other way to raise enough money. Eventually, of course, that may evolve into a system as in the US, where the central bank can produce money out of thin air. And that is the danger that Germany sees.
And then she said that the “emergency fund,” the ESFS, will not be expanded. She said that they will seek more economic “coordination.”
I feel these bland statements and inability to do something are incredible. The markets were waiting for the problems to be addressed, and apparently these two leaders just met for tea. The markets won’t like that.
Those statements remove any hope of a solution in the near future. And that means that the markets will once again go into defensive crisis mode.
But it gets even worse. Merkel and Sarkozy announced the revival of a proposal for a European bank transaction tax. The headline in March of this year was: European Union lawmakers overwhelmingly backed a call to tax financial transactions on Tuesday and make banks pay up to 200 billion euros ($278.3 billion) for damage they caused to the economy.
Americans would probably cheer if that were done in the US although it would hurt the stocks of banks.
Today’s Merket/Sarkozy announced: “The French and German finance ministers will table a joint proposal at the EU level next September for a tax on financial transactions. This is a priority for us.”
This is totally the wrong time for something like that. In the time of crisis, turmoil, and uncertainty, with banks loaded up with hundreds of billions of dollars of bad loans, they want to impose another burden on the financial sector. The mind of a politician works in mysterious ways.
Our view: today’s announcement from Europe is disastrous.