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  • Europe: the final countdown? 0 comments
    Dec 2, 2011 8:26 AM
    2011-DEC-02

    Stock ticker Slowly but surely, the European Union is creeping towards a deal to attempt to solve its debt crisis. Yesterday, European Central Bank president Mario Draghi addressed the European Parliament for the first time since becoming ECB chief at the start of November. He called on eurozone governments to quickly craft a "new fiscal compact," calling it "the most important element to start restoring credibility." He added "other elements might follow, but the sequencing matters." The markets chose to interpret this as coded language indicating that the ECB may be willing to print much more money to buy distressed government debt, provided that the eurozone’s leaders get their act together and press for greater fiscal union and more European Commission “oversight” over national budgets.

    Wednesday’s dollar-swap move has bought the eurozone some more time, though the fundamental problem remains that the structure of EU governance is ill suited to dealing with crises. With 27 heads of government comprising the European Council, any kind of consensus on big changes to Union – and they don’t get much bigger than proposals to give the Commission veto powers over taxation and spending policies in member states – will inevitably involve tough, time consuming negotiations and bureaucratic haggling.

    This sort of stuff usually takes the EU years and even decades to pull off. Alas, with markets as nervous as they are, the EU doesn’t have the luxury of time. Thus, it’s not surprising to see French president Nicolas Sarkozy growing impatient with Brussels’ crab-like advance – noting in a speech yesterday the need for “a new European treaty refounding and rethinking the organisation of Europe… It is not by going down the path of more supranationality that Europe will be relaunched."

    As the blog EUReferendum notes dryly, commenting on this speech:

    “So, we are either back to the Directoire, run by France, the Franco-German Axis or an intergovernmental "core group". None of those will play well in Brussels, where such plans will have all the longevity of a toilet roll in a dysentery clinic.”

    Moving across the Atlantic, bullish new US manufacturing data out yesterday provides further signs that American economic activity is picking up. Reuters quotes one economist who notes that "The economy seems finally to be developing real momentum".

    Absent from the Reuters report is of course any comment on the Fed’s vast money printing efforts over the last few years, and how the surge in M2 money supply over the last few months is what’s responsible for these improving numbers.

    Today’s US nonfarm payroll and unemployment numbers should also surprise to the upside. Consensus estimates among economists are for the unemployment rate to remain at 9%, but for 131,000 gains in nonfarm payrolls. It will be interesting to see what the results turn out to be.

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