FacebookTwitterGoogle+RedditEmail

Another Summit Fiasco

by MIKE WHITNEY

When the book is finally closed on this week’s EU summit, it’ll be interesting to see what people remember the most. Will it be the proposed changes to the Lisbon Treaty, the new steps towards fiscal integration or the disgraceful behavior of David Cameron?

My money’s on Cameron. The UK’s brash Prime Minister did his level-best to derail the collective effort by– setting aside the interests of his country or those of crisis-stricken Europe–and acting as chief toady for the financial service industry. Cameron doesn’t even try to hide the fact that he is owned by big finance. The only thing he really cares about is sabotaging any attempt to regulate financial speculation. Here’s how he defended himself:

“What is on offer isn’t in Britain’s interests so I didn’t agree to it. Of course we want the eurozone countries to come together and to solve their problems. But we should only allow that to happen
inside the European Union treaties if there are proper protections for the single market and for other key British interests.”

Right. The PM was only fulfilling his patriotic duty, don’t you know. Only that’s not how everyone else saw it. They thought Cameron was just kowtowing to his own deep-pocket constituents. Here’s how French President Nicholas Sarkozy summed it up:

“Very simply, in order to accept the reform of the treaty, David Cameron asked for what we thought was unacceptable: a protocol to exonerate the UK from financial services regulation. We could not accept this as at least part of the problems [Europe is facing] came from this sector.”

Now Cameron will have to figure out a way to climb down from his hardline position or face further isolation from his trading partners in the EU block.

As for the summit itself, it was a typical euro-fiasco, long on grand proclamations and photo ops and short on meaningful reform. German Chancellor Angela Merkel has gotten it into her head, that all the eurozone’s problems can be traced to the wastrel spending habits of countries in the South. She has yet to consider
that the capital flows that triggered the crisis all came from German, French and UK banks trying to make a buck on sovereign bonds that were just basis points above rock-solid German bund. The same phenom inflated the housing bubble in the US from 2001 to 2006. The $600 billion current account deficit kept capital flowing into Wall Street’s garbage assets (MBS, CDOs) while economists waved their hands overhead warning of an impending implosion. No one listened. The rest is history.

On Friday, stocks rose sharply indicating that investors take a generally positive view of the summit’s outcome. Unfortunately, we’ve seen this movie before. The surge usually lasts one-full trading session before the selloff begins. While the European Central Bank (ECB) did throw a lifeline to the banks by extending emergency loans for up to 3 years, by slashing interest rates, and by accepting any manner of dodgy collateral for loans; ECB chief Mario Draghi stopped short of backstopping sovereign debt or acting as lender of last resort. In fact, markets plunged yesterday after Draghi announced that he has no intention of keeping rates on sovereign debt low via quantitative easing.

“We have a treaty and Article 123 prohibits financing of governments. It embodies the best tradition of the Bundesbank. We shouldn’t try to circumvent the spirit of the treaty,” he said. He also shrugged off using the IMF as an instrument to conduct stealth QE. According to the Telegraph, Draghi said:

“Let us not forget that the ECB is not a member of the IMF. One cannot channel money in a way to circumvent the treaty provisions. If the IMF were to use this money to buy exclusively European bonds, we think is not compatible with the treaty.”

So, no lender of last resort, no QE, and no allowing the emergency fund (ESM) to be used as a bank. (which would maximize leverage) At the same time, member states are being asked to ratify changes to the existing treaty that would compromise their sovereignty if budget deficits exceed 5 percent of GDP. This is a rather clumsy and intrusive way of establishing a central fiscal authority. Merkel sees this kind of control over national budgets as the only way to avert another crisis in the future. Opposition to the plan is likely to be ferocious.

All in all, the summit was a spectacular waste of time barely confusing enough to send stocks on a one-day tear. Here’s how Reuter’s blogger Felix Salmon summarizes the 2 day confab:

“…it is now, officially, too late to save the Eurozone: the collapse of the entire edifice is now not a matter of if but rather of when….

The fundamental problem is that there isn’t enough money to go around. The current bailout fund, the European Financial Stability Facility, is barely big enough to cope with Greece; it doesn’t have a chance of being able to bail out a big economy like Italy or Spain….

And there’s more bad news, too. All of Europe’s hopes right now are being placed in something called the European Stability Mechanism — a permanent successor to the temporary EFSF…. (But) the European leaders seem determined, today, to prevent the ESM from operating as a bank at all. Which means it will never get the firepower it needs to be taken seriously….

It all adds up to one of the most disastrous summits imaginable….Europe’s leaders have set a course which leads directly to a gruesome global recession, before we’ve even recovered from the last one.” (“Europe’s Disastrous Summit”, Felix Salmon, Reuters)

Merkel and Sarkozy have cobbled together a needlessly punitive agreement that fails to address the fundamental issues that are tearing the eurozone apart. It’s only a matter of time before soaring bond yields and bank failures send them rushing back to the drawing board.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, forthcoming from AK Press. He can be reached at fergiewhitney@msn.com

More articles by:

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

CounterPunch Magazine

minimag-edit

bernie-the-sandernistas-cover-344x550

zen economics

June 27, 2017
Jim Kavanagh
California Scheming: Democrats Betray Single-Payer Again
Jonathan Cook
Hersh’s New Syria Revelations Buried From View
Edward Hunt
Excessive and Avoidable Harm in Yemen
Howard Lisnoff
The Death of Democracy Both Here and Abroad and All Those Colorful Sneakers
Gary Leupp
Immanuel Kant on Electoral Interference
Kenneth Surin
Theresa May and the Tories are in Freefall
Slavoj Zizek
Get the Left
Robert Fisk
Saudi Arabia Wants to Reduce Qatar to a Vassal State
Ralph Nader
Driverless Cars: Hype, Hubris and Distractions
Rima Najjar
Palestinians Are Seeking Justice in Jerusalem – Not an Abusive Life-Long Mate
Norman Solomon
Is ‘Russiagate’ Collapsing as a Political Strategy?
Binoy Kampmark
In the Twitter Building: Tech Incubators and Altering Perceptions
Dean Baker
Uber’s Repudiation is the Moment for the U.S. to Finally Start Regulating the So-called Sharing Economy
Rob Seimetz
What I Saw From The Law
George Wuerthner
The Causes of Forest Fires: Climate vs. Logging
June 26, 2017
William Hawes – Jason Holland
Lies That Capitalists Tell Us
Chairman Brandon Sazue
Out of the Shadow of Custer: Zinke Proves He’s No “Champion” of Indian Country With his Grizzly Lies
Patrick Cockburn
Grenfell Tower: the Tragic Price of the Rolled-Back Stat
Joseph Mangano
Tritium: Toxic Tip of the Nuclear Iceberg
Ray McGovern
Hersh’s Big Scoop: Bad Intel Behind Trump’s Syria Attack
Roy Eidelson
Heart of Darkness: Observations on a Torture Notebook
Geoff Beckman
Why Democrats Lose: the Case of Jon Ossoff
Matthew Stevenson
Travels Around Trump’s America
David Macaray
Law Enforcement’s Dirty Little Secret
Colin Todhunter
Future Shock: Imagining India
Yoav Litvin
Animals at the Roger Waters Concert
Binoy Kampmark
Pride in San Francisco
Stansfield Smith
North Koreans in South Korea Face Imprisonment for Wanting to Return Home
Hamid Yazdan Panah
Remembering Native American Civil Rights Pioneer, Lehman Brightman
James Porteous
Seventeen-Year-Old Nabra Hassanen Was Murdered
Weekend Edition
June 23, 2017
Friday - Sunday
Jeffrey St. Clair
Democrats in the Dead Zone
Gary Leupp
Trump, Qatar and the Danger of Total Confusion
Andrew Levine
The “Democracies” We Deserve
Jeffrey St. Clair - Joshua Frank
The FBI’s “Operation Backfire” and the Case of Briana Waters
Rob Urie
Cannibal Corpse
Joseph G. Ramsey
Savage Calculations: On the Exoneration of Philando Castile’s Killer
John Wight
Trump’s Attack on Cuba
Dave Lindorff
We Need a Mass Movement to Demand Radical Progressive Change
Brian Cloughley
Moving Closer to Doom
David Rosen
The Sex Offender: the 21st Century Witch
John Feffer
All Signs Point to Trump’s Coming War With Iran
Jennifer L. Lieberman
What’s Really New About the Gig Economy?
Pete Dolack
Analyzing the Failures of Syriza
Vijay Prashad
The Russian Nexus
Mike Whitney
Putin Tries to Avoid a Wider War With the US
FacebookTwitterGoogle+RedditEmail