A European Crisis Glossary

Amid all the brouhaha about S&P downgrading its rating for US Government debt, the parallel ongoing crisis in Europe should not be forgotten. “Crisis”? Take it away, Nouriel:

Definition of “crisis”: when officials need to huddle up on a weekend before Asia opening to take decisions & do statements a turmoil rages


Nouriel Roubini

The Czech daily Mladá fronta dnes, as caught by the @Zpravy Twitter-feed, has the details on this particular edition:

iDnes: Lídři EU chtějí rychle realizovat závěry summitu. Uklidní tak trhy: Vlády musí urychleně dokončit dohody … http://bit.ly/oLaqvt



Turns out, if you like, that you can blame everything on European vacation syndrome (e.g. “No one touches my August holiday!”): EU leaders want to quickly carry out changes from summit, that way they’ll calm markets is the headline here.

  • “Summit”? That’s the one they just had, of course, an extraordinary convening in Brussels on July 21 in reaction to the Italy/Spain funding troubles.
  • “Changes”? That has to do with the European Financia Stability Facility (EFSF), which leaders at that summit agreed would be beefed up to better be able to intervene to assist eurozone member-states in financial need, eventually even becoming a sort of European Monetary Fund.

Right now, with the new pressure on Spain and Italy, there is real doubt whether that EFSF is big enough to put out all the fires. But the immediate problem is rather that, yes, the leaders made this decision at that summit, but then left it to be implemented according to the usual schedule of European Institutions. Those institutions are currently all away on their August holidays, whereas the markets together with investors from whom Spain and Italy still expect to be able to borrow money are not willing to wait until all the Eurocrats have returned to work.

The result according to the Czech paper has been a recent series of extraordinary conference-calls, at one point simultaneously featuring German Chancellor Merkel, French President Sarkozy, Spanish premier Zapatero, Italian premier Berlusconi, and British PM David Cameron all on the line, with US Treasury Secretary Timothy Geithner also allowed to listen in. Afterwards, it is reported here, they all called President Obama for good measure.

We’ll see what they came up with from any official announcements during the rest of this weekend, and then of course get market reaction starting from the Asian opening late Sunday night/early Monday morning (European time). But one thing these conversations are said to have produced was a pledge by Berlusconi to balance the Italian budget a year ahead of schedule, in 2013, and even to put a balanced budget amendent into the Italian constitution. (At least that is how I interpret the key phrase here ústavního dodatku, although ústavní can mean merely “institutional” in addition to “constitutional.”) If such an ironclad balanced-budget imperative would be a foolish move for the US – which everyone agrees it would be – how can it make any more sense for Italy?

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