Geithner's European Lecture Tour

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 |  Includes: FXE
by: Craig Pirrong

Timmy! is in Europe, to lecture the Europeans (yet again) on the need to get their house in order. After all, his trips have been so wildly successful before, in the same way as Rodney Dangerfield shows were wildly successful. Or in the same way as Geithner's "very tough" action on Libor took care of that problem.

His trip has a special urgency now, because Obama fears that economic "headwinds" from Europe will interfere with his reelection prospects.

Germany's finance minister, Wolfgang Schäuble, has been known to give Timmy! verbal lashings in the past, and he did deliver a preemptive rejection of what Geithner is pushing Europe-and Germany specifically-to do:

Wolfgang Schäuble, Germany's finance minister, has dismissed speculation about any Spanish request for eurozone support in buying its sovereign bonds, and ruled out making more concessions to help Greece, on the eve of talks on the eurozone crisis with Tim Geithner, US Treasury secretary.

The tough German resistance to launching any new initiative in the two most embattled member states of the eurozone looks set to clash with Washington's constant appeal for action to stem contagion in the crisis.

Schäuble was on good behavior in the aftermath of his meeting with Geithner, and avoided the stinging rebukes he had delivered in the past. Instead, the two limited themselves to exchanging banalities so light that it must have taken a large number of sandbags to keep them from soaring off into the heavens, like the Wizard of Oz. They agreed that it would be a good thing to avoid a eurozone crisis, and that everything should be done to achieve that:

The statement said that Messrs. Geithner and Schäuble "emphasized the need for ongoing international cooperation and coordination to achieve sustainable public finances, reduce global macroeconomic imbalances, and restore growth."

The two stressed "the need for policy makers to adopt and implement all reform steps required to deal with the financial crisis and crisis of confidence," while noting that top EU officials have said they will do whatever is necessary to fix the crisis.

Ah. "Whatever is necessary." The new mantra. Like what, specifically? "Whatever is necessary." What is necessary? "All reform steps required." What are those? "Whatever." Whatever (in the snotty teen sense of the word) is right.

Sort of like saying that it would be a great idea to have fat free ice cream that tastes just like Haagen Dazs. Pretty much everyone likes the idea, and definitely nobody has the slightest idea how to make it a reality.

ECB head Mario Draghi has gone out on a limb with his "whatever is necessary" promise. Foolishly, a lot of investors have crawled out there with him. I'm betting that Merkel, Schäuble, and Germany generally are going to saw it off, mainly because "whatever is necessary" to save the euro is likely to impose crushing burdens on Germany that Germans will not accept. I can't see any mutually acceptable bargain here. And certainly Timmy!'s and Obama's hectoring isn't going to make a bargain any more likely.