Home > Uncategorized > Carthaginian terms for Italy and Spain threaten Draghi bond plan – Telegraph

Carthaginian terms for Italy and Spain threaten Draghi bond plan – Telegraph

September 10, 2012 Leave a comment Go to comments

In a poignant exchange here at the Ambrosetti forum – a gathering of the world policy elites at Villa d’Este on Lake Como – he talked of intense “psychological pressure” from Paris and Berlin in the early months of his tenure. It all changed three months ago with the liberating arrival of President Francois Hollande.

This was the birth of the Latin Bloc. Mr Hollande was no longer willing to stick doggedly to the same destructive course or endorse the German morality tale that “sinner states” alone are responsible for Europe’s woes.

A grown-up view has at last prevailed. This is a crisis of capital flows and trade imbalances, a dysfunctional structure in which Germany itself is an equal “sinner” – a meaningless term in economics – in as much as it clings to a mercantilist trade advantage over Club Med through a distorted intra-EMU exchange rate.

Nor could the Draghi breakthrough have happened without the diplomatic arm-twisting of China and America. President Barack Obama found his intellectual soulmate in Mr Monti, telephoning him for every update on Europe’s drama, treating him as de facto president of Europe, concentrating the full might of the United States behind the very different Monti narrative of the crisis.

Mrs Merkel has bowed to vastly superior global power, but only partially. Italy and Spain will each have to sign a Memorandum accepting “severe” conditions. It will not be enough to meet their existing deficit targets. They will have to do more.

If the Latins had any sweet illusions, these were surely dashed by the explosive response of the German media and political class to the Draghi Plan. “It will drive Germans to the barricades,” said the unusually unflappable Suddeutsche Zeitung; it is “blank cheque”, said Bild Zeitung. The euro is “kaput”.

Outrage from the Free Democrats (FDP) was predictable and can be ignored. They face near annihilation as a political movement. The blistering critique from the Social Democrats (SPD) is more ominous. “Merkel has allowed the ECB to become an ersatz government,” said Carsten Schneider, the SPD’s budget spokesman.

We can expect the Bundestag to impose Carthaginian terms, and there lies the rub. With Spain and Italy already in debt deflation spirals – and youth unemployment at 53pc and 35pc respectively – the limits of the politically possible are approaching.

Spain said it will study the terms very closely before deciding. Finance minister Luis de Guindos reminded the creditor bloc that the battle for the survival of the euro will be fought in Spain, a choice of words that some took as a renewed threat to walk out of EMU -if pushed too far- and bring down the temple on Germany’s head.

via Carthaginian terms for Italy and Spain threaten Draghi bond plan – Telegraph.

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