Eurozone’s Fragile Structure

We won’t be cruel by reminding you that François Hollande, recently, and his predecessor Nicolas Sarkozy, last spring, had declared the Eurozone crisis « over »... All the different bailout plans are only fragile undertakings, and the smallest shock can bring them down, as we know and are witnessing right now.

Greece, again and always, isn’t out of the woods. Last week, it secured yet another plan, for 84 billion euros (40B for a debt haircut and 44B of fresh money). Everyone knows this plan won’t be the last, and that a massive restructuration is needed. And as for Spain, banks received 37 billion euros, and it’s only the first tranche!

We had almost forgotten Ireland and Portugal, but we shouldn’t have. Ireland central bank’s governor just announced that « it may need considerably more time to repay » the 85 billion euros Ireland has received as part of its bailout plan. In Portugal, the newspapers are writing that the country will ask for the same conditions that Greece got, meaning debt haircuts and more money.

But the big scare of the week comes from Italy. Two events are changing things : Silvio Berlusconi announced his political return, and Mario Monti resigned. There will be anticipated elections in February or March, and this will bring some uncertainty for a while. All the patient work Mario Monti has done with structural reforms might be for naught, and the markets are weary of Italy.

The euro crisis is far from over. We are only witnessing periods of relief that are bought with more bailout plans, which only adds to the mountain of debt and to the instability of the system.

The economic reason has faltered a long time ago; it has been replaced by the political agenda. As the French elections were nearing, it was paramount to avoid a grave Eurozone crisis. Now, the horizon is fixed on the general elections in Germany in September 2013. The institutions of the Eurozone will do everything in their power to avoid a crisis, including showering all the above-mentioned countries with billions of euros. The ECB will oil the machine, and Angela Merkel will be able to say that the euro crisis is over or, as the prudent German she is, that it’s about to be solved. And we’ll see after the election!