The problem is that they are trying to rebuild the euro aircraft while it is still flying and they are already having trouble keeping it in their air. And bits keep falling off.
Lloyds Bank in Britain admitted Friday that it was bracing for $7 billion in losses on Irish loans. The speaker of the Slovakian Parliament said it was time for his country to prepare plans to abandon the euro and return to the former national currency, the crown. And renewed riots in Greece against the harsh austerity measures reinforced the sense that every time the Europeans mount running repairs, the problem keeps worsening.
"Whatever Greece does won't be enough," Theodore Pelagidis, who teaches economic analysis at Greece's Piraeus University, commented Friday. "Over the course of the next decade it will be forced to repay about 70 billion euros ($92 billion) on average in maturing debt every year. Whatever corrective structural measures it takes, the demands of such colossal repayments will be impossible to meet without sharing at least part of the debt burden with its creditors."
There was little sign of the intensified coordination Lagarde seeks when Europe's leaders met in Brussels last week. The mood was sour, with open resentment against Germany and its refusal for domestic political reasons to go beyond piecemeal measures.
"I can only warn Germany and France against a claim to power that shows a certain overbearingness and arrogance," said Jean Asselborn, foreign minister of Luxembourg.
Despite the mountain of challenges the euro and its members face, the EU summit produced a mouse of a response. They agreed a two-sentence amendment to the EU Treaties, which in principle allows them to stage more rescues in the future.
It read: "The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality."
The details have yet to be worked out. A draft plan is supposed to be ready by March next year and the new mechanism should be on tap sometime in 2013. The question is whether the eurozone has the luxury of that much time before the next crisis hits.
The bonds of Portugal, Spain, Greece and Ireland all fell Friday. And after warning that it may cut the credit ratings of Spain and Greece, Moody's ratings agency downgraded Ireland's debt by a stunning five levels to Baa1 from Aa2, with a negative outlook for the future. Ireland is heading toward junk territory.
The problem is systemic but at German insistence the Europeans are still trying to handle the crises one by one as they erupt, placing Band-Aids over wounds that gape ever wider as the markets keep testing Europe's resolve. Given the verdict of the ratings agencies, the markets are responding rationally.
One of the financial experts the markets listen to is New York University Professor Nouriel Roubini, better known as "Dr. Doom" for his correct forecasts that a dangerous bubble in U.S. housing prices would trigger a financial crisis. Last week, Dr. Doom spoke again.
"After the Greek and Irish crises and the spread of financial contagion to Portugal, Spain, and possibly even Italy, the eurozone is now in a serious crisis," he said. "There are three possible scenarios: 'muddle through,' based on the current approach of 'lend and pray'; 'breakup,' with disorderly debt restructurings and possible exit of weaker members; and 'greater integration,' implying some form of fiscal union."
"The muddle-through scenario -- with financing provided to member states in distress (conditional on fiscal adjustment and structural reforms), in the hope that they are illiquid but solvent -- is an unstable disequilibrium," he went on. "Indeed, it could lead to the disorderly breakup scenario if institutional reforms and other policies leading to closer integration and restoration of growth in the eurozone's periphery are not implemented soon."
Another voice to whom the markets pay attention is Dominique Strauss-Kahn, head of the International Monetary Fund and a former French finance minister who has already pledged hundred of billions of dollars in IMF support for the euro.
"I am worried and that's why I am urging the Europeans to provide a comprehensive solution because this piecemeal approach obviously doesn't work," Strauss-Kahn told reporters last week.
"The markets are just waiting for what's next," the IMF chief added. "You can't have a single currency, especially in times when you have troubles, without having more coordination and economic policy."
In the European Parliament an unlikely coalition of critics emerged as the Socialists, Liberals and Greens all chorused their condemnation of the failure of the EU summit to achieve measures that would convince the markets or reassure the European public.
"Today's summit, under pressure from a blinkered German chancellor, has simply kicked the can down the road again and failed to offer a definitive and urgent response to the eurozone crisis," said Green Party chairwoman Rebecca Harms, who is also German. "With the very survival of the euro at stake, we need urgent measures to prevent the contagion from spiraling totally out of control."
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