EU Summit: Angela Merkel under pressure

28th June 2012

The Associated Press says any breakthrough hinges on Merkel. But "Merkel isn't likely to budge. She has argued repeatedly – and again Wednesday – that short-term solutions such as pooled debt or a more active European Central Bank are useless unless governments prove they can manage their budgets. She wants a grand, ambitious political union first."

Interestingly, Angela Charlton, the author of the article notes that while they may not be able to change Merkel's mind, other leaders who have avoided confronting her in the past may not hold back this time.

Italy's Prime Minister Mario Monti, for instance, is getting increasingly outspoken as he risks losing his job over voter frustration with austerity measures.

While the Spanish prime minister is also sounding especially desperate.

"The most urgent issue is financing," Mariano Rajoy said Wednesday. "We can't continue for a long time to finance ourselves with these prices; there are many institutions and financial entities that don't have access to financial markets."

Simon Tilford of the Center for Economic Reform said, "We're seeing the French, Italians and Spanish showing a greater readiness to act as one."

In the past, they were reluctant to isolate Merkel, "but that flexible approach … has delivered very little. They have grown alarmed and frustrated," he said. "If anyone is to lead the charge, it may be Monti, he is the one who has the most credibility on the European stage".

 

What if the euro's not worth saving?

Taken together, what if all these endless proposals for holding together the fractious euro zone are a mistake? What if the euro zone shouldn't be salvaged? Brad Plumer of the Washington Post diverts our attention to a long post written on Tuesday by economist Scott Sumner in which he explores the notion that no one wants to discuss.

"Yes, a collapse would be very messy, and perhaps it should be avoided, but let's not ever forget that the system we are trying to save is a bad one, and if we "succeed" then the eurozone will be condemned to further crises in the future…….So we shouldn't enact other flawed policies to save this flawed one."

Summer also dismisses any argument that the eurozone should have a "transfer union" like the United States, in which richer states subsidize the poorer ones.

"There are studies showing places like Mississippi receive massive subsidies from other states. … But Mississippi does not elect Senators who call for higher taxes on the rich with the money going to support poor people in Mississippi.  The GOP would insist that's because Mississippians have much more solidarity with the US than Greek voters would have with the eurozone. Dems would insist it's all about white Mississippians having solidarity with other white people.  But even using that worse case assumption, America's fiscal union is still based on a more stable foundation, after all, there are affluent taxpayers spread all across America.  There aren't many affluent Greek taxpayers residing in Hamburg."

Furthermore, it's "Quite likely at some point the northern European taxpayers will rebel, and we won't end up with a United States of Europe.  The policy will collapse.  But why start down a road that will end in failure?  The eurozone really only has two options; a more expansionary monetary policy or a breakup.  There's no point in looking for alternative solutions."

More on Mindful Money

Who's responsible for the current sovereign debt mess?

Van Rompuy's vision for Europe collides with economic reality in Italy and Greece

Saving Private Euro: What if Spain falls?

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