Good as gold

Or should I have titled this post “The Show So Far”?  How about “Meet the New Boss, Same as the Old Boss”?

Under their compromise, each eurozone government will have to adopt in its constitution a “golden rule” that prevents it from persistently running budget deficits.

An FT summary is here.  Here is WSJ coverage.  Here is NYT coverage.  Here is the relevant Monty Python skit.  And there is more, all from the annals of time inconsistency:

The changes will include more “automaticity” in the process of punishing states that breach the EU’s 3 per cent public deficit limits. A move to fine a country will in future only be overturned if a qualified majority of eurozone countries agrees to overturn it.

Merkel says the bondholders of the troubled nations won’t bear losses, although there is no German or other guarantee of the debt.  It is hinting at the prospect of a guarantee without actually making one.  The NYT summarizes the whole thing:

The new euro package, as European and American officials describe it, is being negotiated along four main lines. It combines new promises of fiscal discipline that will be embedded in amendments to European treaties; a leveraging of the current bailout fund, the European Financial Stability Facility, to perhaps two or even three times its current balance; a tranche of money from the International Monetary Fund to augment the bailout fund; and quiet political cover for the European Central Bank to keep buying Italian and Spanish bonds aggressively in the interim, to ensure that those two countries — the third- and fourth-largest economies in the euro zone — are not driven into default by ruinous interest rates on their debt.

Only the last one on that list means anything.  They might as well try to fool the markets this way.  The positive scenario is: 1) fool the markets, 2) give Italy breathing room, 3) Monti restores growth and sound finances in Italy, and 4) things aren’t so bad anymore.

There aren’t really any better (and feasible) ideas on the table.


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