This report from (yesterday’s EU observer) draws attention (my emphasis added) to an oddly revealing aspects of the worsening Eurozone crisis:
European Commission head Jose Manuel Barroso has urged EU countries to speed up ratification of the bloc’s new-model bailout mechanism to reassure markets on Italy and Spain. In a flash statement emailed to press on Wednesday (3 August), Barroso voiced “deep concern” about the increase to record highs in the cost of borrowing for the two countries in recent days.
“It is essential … that we move forward rapidly with the implementation of all of that has been agreed by the heads of state and government and send an unambiguous signal of the euro area’s resolve to address the sovereign debt crisis,” he added. “Tensions in bond markets reflect a growing concern among investors about the systemic capacity of the euro area to respond to the evolving crisis.”
Eurozone leaders at a summit in July agreed to change the terms of the currency club’s €440 billion bailout fund so that it could in future act pre-emptively to avert Greek-type financial meltdowns. But national parliaments opted to break for their summer recess instead of ratifying the measures, leaving investors wondering how or if they will work in practice.
And, for financial markets, uncertainty can be a killer.
My suspicion has always been that the ratification process was going to be a little tougher than was at first so blithely assumed. The question now is whether the current crash may be the latest ’beneficial crisis’ that gets it (and other measures) forced through, or whether it triggers a voter revolt in Germany and elsewhere. And that’s not the end of the matter; there are now suggestions that, if Italy and Spain are to fall under its umbrella, the ESFS (the Eurozone’s bailout facility) might have to be quintupled in size to some €2 trillion (or more!), a number that might just be the lump of concrete that breaks the German taxpayer’s back.