Will the new eurodeal work?

Sarkozy and Merkel are already prepping their electorates for a pending deal, the usual media sources give some varying summaries of what is up, plus it will evolve anyway.  A few of you have written in and asked me if it will work.

I have a simple formula for assessing euro-deals, and it goes as follows:

1. Can Italy grow at two percent a year, more or less sustainably?

2. Will/can the market regard the actions of the seventeen eurozone nations as more or less unified?

If you can add up those two questions to about 1.7 worth of “yes,” then the deal can work.  Otherwise not.

You might also wonder, if the answers to those two questions come in at 1.8, is the deal needed in the first place?  Probably, to get #2 up to a quasi-yes.  (By the way, the Irish seem to think a treaty change and thus a referendum is on the way.)

It is my best judgment — and I stress that word — that the sum answer to those two questions, even with an announced deal by Dec.9, and looser monetary policy, comes in at about 1.16.  Which isn’t enough.

Asking for 1.7 worth of yes seems quite modest, doesn’t it?

Addendum: Do not think that Germany has merely to waive a magic wand, or incur a one-time cost, to set things right in the eurozone.  Any “set things right” action on Germany’s part is, one way or another, a form of doubling down.  If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany.  The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.”  That’s a tough call.  The Germans understand that one better than do most of the bloggers I’ve been reading on the topic.

By the way, here is an interesting article on German geopolitics, though I don’t agree with much of it I recommend giving it a read.


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