Anthony Hall
It should be deja vu all over again this week on Wall Street as investors look to Europe for signs of a solution, so far elusive, to sovereign debt problems.
The buzz word this week is "firepower." It appears in The Wall Street Journal. Last week it made its debut in The New York Times. Like many a solution, however, it is last year's solution with a new coat of paint. Last year it was "shock and awe" -- investors need to be thoroughly convinced the governments of the world had enough might to swat the financial crisis away. It didn't happen then. It won't happen now.
The crisis in Greece is running toward its third year. For a while, 18 months ago, the headlines said "a solution is coming," until investors figured that figureheads where just crying wolf. Every other headline said Germany was playing games, trying to help save the euro but hoping the voters didn't figure it out. German leaders, in other words, saw the value of the euro, but German voters saw the value in the shortest workweek of any developed economy. They bragged about thrift, not largesse.
Shock and awe in Europe became hem and haw. It then took two bailout packages to keep Greece from default, and by then Ireland and Portugal required bailouts, too.
Fun so far? This past weekend financial leaders gathered in Washington for meetings at the International Monetary Fund and the World Bank -- on the schedule as housekeeping meetings that have turned into anything but since the crisis began.
The most starling proposition over the weekend came from U.S. Treasury Secretary Timothy Geithner, who said the European Central Bank should guarantee government bonds in the 17-member eurozone, basically putting specifics to the concept of firepower.
It has become painfully obvious that the euro does not have the backing it needs to be a currency that can hold up on the world stage. There is no 17-member tax code and no 17-member treasury department. The European Commission cannot quickly do anything. It is a federation without central power. It is run by a commission and has a central bank, but the bank's sole mission is to control inflation. The European Central Bank's recent forays into buying bonds from Greece, Italy and Spain have serious opposition.
Firepower, in other words, is a structural situation. Nobody wants to write the check. Finland has asked for collateral from Greece -- as if finding a moneymaker in Greece was that easy. What makes sense? A Greek island for Finland, a few more for Germany? Gentlemen, get out your carving knives?
Firepower or default: Investors are waiting for a world leader with the backbone to make the call.
Stocks were down Monday in Asia, but higher in Europe. In Japan, the Nikkei 225 index fell 2.17 percent and the Hang Seng index in Hong Kong gave up 1.48 percent. The Shanghai composite index in China lost 1.64 percent and the Sensex in India shed 0.69 percent.
The S&P/ASX 200 in Australia lost 1.01 percent.
In midday trading in Europe, the FTSE 100 index rose 0.91 percent while the DAX 30 in Germany added 3.19 percent. The CAC 40 in France rose 2.76 percent nd the Stoxx Europe 600 gained 2.33 percent.
