The Can-do syndrome

I don’t really like the expression, now appropriated to the euro debate, ‘kicking the can down the road’: it seems to imply that the can is the problem, whereas in fact it is nice to have something to kick down the road when you have to walk and there’s nothing else to do. In fact I am more of a rugby man than a soccer man and might probably pick up the can and run with it, although that would be management speak analogy for the exact opposite.

Good. My only other contribution to this polemic is to say that what the European Union are doing is kicking a bomb down the road, not a can.

The Germans, you see, felt that the private sector should help carry the can (sorry for the confused metaphor) and it is easy to see why. The debate in England after the bailout of the banks was that when they invested wisely they reaped huge returns, but when they invested foolishly the taxpayer carried the (sorry) burden. If they lost nothing, having bought Greeks bonds at a massive return, and were always going to be bailed out, investing in Athens’ worthless IOUs would have been a one-way ticket to success.

The French pointed out that this would constitute a default, which would trigger other defaults until the whole thing collapsed.

The trick was to find a solution acceptable to France and Germany (I don’t know about the other 15 members of the Eurozone, they just seem to be herded into the Franco-German lobby). And in this they have done quite well. The financial markets want to believe in the euro, particularly since both America and Japan look unattractive at the moment, and the response was at first ecstatic. Later on the ecstasy level subsided and there were mutterings, but I don’t think these will come to too much. This has staved off crisis until the Autumn.

The private sector involvement, which will cause a minor ‘selective’ default, will be to have to replace their Greek bonds with long dated eurobonds, that is to say obligations of the whole eurozone.

In September-October there will be another summit and the minute detail of the deal will come out. Some of this has been deliberately withheld (or not agreed yet) and a bit of confusion remains: the European Commission announced that the deal was for €159 billion including private sector involvement, whereas it told the participants (who have to pay for this) that it was only €109 billion. The difference appears to be the amount of the first bailout which has yet to be disbursed, but the Dutch are already crying foul.

By September traders will have had their summer holidays to mull this over, and America will have agreed action on its debt ceiling so the dollar won’t be quite the disaster area it is at present. The markets will ask what is being done to address the wide differences in productivity between the South and the North. Without narrowing this gap we shall have to go through the same crisis in a couple of years’ time. The answer that the whole thing will be managed by Germans is not likely to be acceptable to the South.   

In the meantime the dogs have been called off. Ask a eurocrat if the euro can survive this, he will say ‘Yes, we can’ (sorry, sorry).