More Bickering on the Agenda Today in Brussels

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You may be surprised to learn that the rest of the world still exists today, but it does! In particular, EU leaders are meeting today to decide if they plan on doing anything to prevent the eurozone from melting down, or if they’re just going to twiddle their thumbs a bit longer. Unfortunately, reading the tea leaves is even harder than usual right now. For example, here is German Finance Minister Wolfgang Schäuble on the possibility of pooling European debt in order to shore up Spain and Italy:

Berlin Blinks on Shared Debt

Germany may be willing to move sooner than expected to accept shared liability of euro-zone debt and would support short-term measures to deal with the acute financing problems facing some of the region’s governments….Mr. Schäuble said Germany could agree to some form of debt mutualization as soon as Berlin is convinced that the path toward establishing centralized European controls over national fiscal policy is irreversible. That could happen before full implementation of treaty changes.

That sounds promising. But here’s his boss, chancellor Angela Merkel:

Germany rules out pooling of eurozone debt

Germany has flatly ruled out any pooling of eurozone debt in response to the single currency crisis, seeming to set the scene for clashes at an EU summit that looks unlikely to take any big decisions to quickly stabilise the euro…..[Merkel] made it clear she would not yield to pressure to move towards the common issuance of eurozone debt in the form of eurobonds, to lower the cost of borrowing for vulnerable countries such as Spain and Italy.

Merkel’s tough stance appeared to open up the prospects of a clash with Mario Monti, the Italian prime minister, who is trying to restructure Italy’s creaking economy but is impotent in the face of the financial markets raising the price he pays to borrow. Italy was forced to offer a yield of 2.96% to sell six-month bills, up from 2.1% a month ago. Its benchmark 10-year yield was up slightly at 6.22% and faces an important test with an auction of €5.5bn (£4.4bn) of five and 10-year bonds.

Not so promising! Overall, I’d say the tea leaves are bending toward more thumb twiddling, but I suspect that this depends a lot more on outside events than on negotiations behind closed doors in Brussels. Germany is going to hold out as long as it can, and that means holding out until catastrophe is truly looming and either Spain or Italy is about to collapse. That could happen tomorrow or it could happen six months from now. So stay tuned.

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