Ambrose Evans Pritchard in the Telegraph always writes with clarity and is often first to call it as it is.
….Europe’s whole financial system was out of control, and still is. The North has not yet forced banks to rebuild their capital buffers or nationalize those that cannot do so, understandably in one sense since it might risk a credit crunch. Germany’s policy towards the Landesbanken is a study in paralysis.
That is why Europe dares not lance the boil with “haircuts” and debt restructuring. It dares not risk a repeat of Europe’s Lehman moment in May 2010. It is why the EU has scotched any quick move by Ireland to deflect the shards of pain from taxpayers to senior bank creditors.
How long will democracies accept being made the scapegoat for what is in part a Franco-German-Benelux banking debacle?
Not for ever, judging by comments this week by Avriani, a paper with ties to Greece’s ruling PASOK party. “We should default and return to the Drachma to punish foreign loan sharks who have bled us dry,” it said.
Ireland’s Enda Kenny may ultimately have to choose between his EU club loyalties and his duties to the sovereign nation that elected him. Some within his coalition ranks already seem tempted to retaliate by pulling the plug on EU banks. That would certainly remind Chancellor Merkel and President Sarkozy what this crisis is really about.
Popular revolt is the dog that has not barked since the long slump began. This may just be a question of time. The pattern of the 1930s is that deep alienation starts in year three as austerity grinds on, and in this case tensions on the eurozone peripery can only turn nastier as the ECB tightens monetary policy.
What is clear is that sovereign states are being forced to cut wages and dismantle parts of their welfare state under foreign diktat, with a gun held to their heads. This will not be forgotten lightly. The character of the European Project has changed utterly. (link to full article)
