It’s sounding like Angela Merkel is finally coming around to the reality that the EMU requires fiscal union or bust. Clearly, Germany would be crazy to break up a currency union that has been so good to them so the rhetoric appears to be changing a bit. Merkel has acknowledged the need for greater fiscal union several times in the last few days. The latest coming earlier today (via the FT):
“Angela Merkel, Germany’s chancellor, has spelt out her determination to create a legally enforceable “fiscal union” for the eurozone, rejecting “quick fixes” such as the immediate introduction of eurobonds to deal with the debt crisis in Europe.
France and Germany will to seek finalise their proposals for treaty change in the European Union on Monday, she told the German parliament on Friday, insisting that only fundamental reforms to reinforce budget discipline and curb government borrowing would deal with the causes of the crisis.”
But let’s be very clear here. What needs to come out of the summit next week is not merely treaty changes that allow for greater fiscal oversight (read, austerity imposition). Europe needs to fire the bazooka. After all, this crisis is reaching its endgame. With many of the periphery nations now in unsustainable interest rate territory the crisis is kicking up into another gear. Credit Suisse summarizes the need for immediate action:
“The deterioration in liquidity and pricing in euro area government bond markets means an aggressive policy response is urgently needed. Liquidity needs to be restored by the time government issuance ramps up in early 2012.”
I hope Europe’s leaders are not going to be shy next week. When I said they should be bold I meant BOLD. There’s a bazooka on the table in the form of ECB bond buying or e-bonds (e-bills?) and they need to pick that bazooka up and fire it right into the mouth of this crisis. There is no time left for political bickering. And if they fail to act on the 9th it’s likely that the markets will seize up again and politicians will be forced into emergency action. We’ve essentially reached that “now or never” moment….