There are only so many Catch-22s one struggling currency region can take -- or so it would seem.
Nobody truly knows the limit of how many delays in implementing rescue efforts in Europe the 17-nation currency region known as the eurozone can survive. Given the cumbersome set up of one region with 17 national parliaments, the task of finding a consensus is Herculean at best. Making a fundamental change quickly is as daunting a concept as can be imagined.
Recent announcements concerning rescue efforts for the euro have been positive. In the Netherlands, a recent election showed pro-eurozone rescue support. In Germany, a constitutional court said it was permissible for the government to contribute to the European Stability Mechanism, a $650 billion fund for which Germany is to be by far the largest contributor.
These developments fell on the heels of the European Central Bank announcing it would buy short-term bonds from governments struggling to climb out of debt.
This announcement provoked a serious round of optimism among investors, with equity markets surging on the news, in part because many figure the ECB is the only institution with deep enough pockets to make a clear difference.
This announcement was so stunning it had the gratuitous effect of lowering borrowing costs for Spain and Italy, despite the fact that the ECB had yet to buy a single bond.
Spain and Italy benefited from the halo effect -- a sense of optimism that came when investors learned that help was on its way. But this is not unlike crash survivors eating the last of their food supply because someone said they could hear a helicopter in the distance. Whether this euphoria pans out or not has yet to be determined.
The ECB said there were rules to consider. The one that matters was it would buy bonds only from countries that first applied for help through the ESM.
That meant the ECB would force countries to play by ESM rules.
Spanish Prime Minister Mariano Rajoy is very reluctant to do that. In point of fact, the international community has agreed to loan $130 billion to Spain to bailout its banks. That money is, essentially, theirs for the asking.
But Rajoy is not asking, because ESM rules mean Spain must add the loans to the very debt burden it has worked hard to keep trim.
Spain would rather the loans go directly to its troubled banks, so it would not need to count the loans as an addition to its national debt.
Germany, however, continues to veto that possibility, because it does not want to loan money to a private company in another country, where Germany feels it will have lost control of funds belonging to its taxpayers.
While the ECB bond-buying was expected to slice through the difference, the ECB played it safe and said, essentially, that if Spain wants ECB help, it will have to confront Germany first.
Well, fat lot of good that has done anyone so far. After too many austerity budget cuts to count, the Greek economy is falling off a cliff and the international community still expects Athens to find another $11.5 billion in spending cuts before it is handed another $323 billion in loans that it will have to put on its books as increased debt.
The international community will then ask Athens to make more progress cutting its debt, so it can give Athens another loan that will add to its debt.
Last weekend, demonstrators took to the streets in Portugal and Spain and protest budget cuts. Just prior to the weekend, European Commission President Manual Barroso proposed a central banking regulator for the eurozone -- presumably the ECB – that would then make it an ECB decision whether or not to loan money directly to Spain's banks -- and guess what. Loaning to banks is precisely what central banks do every day.
Needless to say, Spain urged the European Union to push this proposal along. France weighed in and said "good idea." But German finance minister Wolfgang Schauble said rushing the process would be "impossible."
Anyone could have made the same comment, because there are several countries unwilling to just hand over control of its banks to the ECB and European Union treaties would have to be broken down and rebuilt do allow a central authority permission to regulate banks in different countries.
Europe, in other words, is not getting out of its mess as quickly as it may have seemed a week ago. There has been substantial progress on several fronts, but bringing Germany to the well and forcing it to drink are two entirely different things.
In international markets Tuesday, the Nikkei 225 index in Japan gave up 0.39 percent, while the Shanghai composite index in China lost 0.91 percent. The Hang Seng index in Hong Kong dropped 0.27 percent, while the Sensex in India shed 0.25 percent.
The S&P/ASX 200 in Australia dropped 0.18 percent.
In midday trading in Europe, the FTSE 100 index in Britain lost 0.55 percent, while the DAX 30 in Germany slipped 0.62 percent. The CAC 40 in France dropped 0.8 percent, while the Stoxx Europe 600 lost 0.41 percent.
|Additional Analysis: Economic Outlook Stories|
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