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Roger Bootle on the European Crisis Deal: Get Austere or Die Trying

Here’s Roger Bootle talking to Bloomberg’s Maryam Nemazee about the deal hammered out yesterday to ‘save Greece.’ He is quite sceptical. The 120% debt to GDP figure that the deal is predicated on reaching is still high and assumes a benign economic environment. Bootle believes these assumptions are rosy given the negative impact fiscal consolidation will have on growth.

Separately, I have seen a number of other threads on the crisis. Most of the commentary has been negative. One would never know this given the incredibly bullish reaction in the markets. Here are the most interesting threads:

  • The Economist says “The euro deal: No big bazooka”. They reckon “Europe’s leaders have agreed on how to prop up the euro. For now”. However, they see this deal as another extend and pretend exercise. Note, Brown Brothers Harriman mentioned in their morning note that this was the 14th emergency summit. Wow, that’s a lot of extending and some serious pretending. Can they keep it up?
  • In the UK, according to the Guardian, the British government asked for and got a seat at the negotiating table even though French President Sarkozy asked Prime Minister Cameron to butt out. David Cameron urged Merkel to let central bank play greater role in the future of Euro’s emergency activities.
  • The Telegraph’s Ambrose Evans-Pritchard says “Europe’s grand gamble risks failure without ECB” taking the line that David Cameron took to Brussels.
  • In Germany, Der Spiegel remarks that countries outside the euro zone are sitting pretty while inside the euro zone a two class society has developed (link in German).
  • In Ireland, David McWilliams wonders why Ireland is seen as a model for the euro zone periphery. He writes: “When you walk up one of Ireland’s deserted main streets, it is difficult to reconcile the talk of Ireland doing well and being the model for other European countries to follow with the reality of living here. The reality here is that retail sales have collapsed and are not recovering. Anyone dependent on the domestic economy is just about surviving. No credit is being made available to anyone and unemployment is devastatingly high, while emigration continues apace. That is what is going on in the “Real Ireland”.”
  • And in Spain, El Pais writes “there is no plan B (link in Spanish).” They say that in may, Zapatero had to get austere and that didn’t work. Now the Germans and the French want the same jujitsu plan for the Italians. “That’s what was on the table yesterday in Brussels.” What about a backup plan? There is none. “Europe does not know if this is a fiscal crisis or a banking crisis," said Charles Wyplosz.

Roger Bootle says a breakup of the euro zone will happen on weakness. He argues "you cannot get to prosperity by stopping spending". Well, Euroland is going to try. Forget about the ECB. Forget about getting the surplus nations spending. For the euro zone, it’s get austere or die trying.

Bootle video below

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

6 Comments

  1. David Lazarus says:

    The real issue is not that they will try this , but how long before everyone has another summit with the next plan?

  2. john haskell says:

    If I look on Bloomberg.com I see that the Italian 10 year has rallied from 5.85% ytm to 5.87% on the day. Now if that isn’t “incredibly bullish” tell me what is!

  3. Dave Holden says:

    lather, rinse and repeat.

    To be fair the politics of addressing the fundamental issue – fiscal union – would have been difficult even in good times. The key will be how the politics of the crunch crisis play out. That being when they don’t have a sticky plaster big enough to kick the can one more time – and that’s anyone’s guess.

    • David Lazarus says:

      Yes and the politics of the situation are why nothing can be predicted. Will Germany save the euro or will it break it up by failing to support the periphery? Who knows?