Last Minute Summit Mutiny Threatens The Future Of The Euro; And Why A Wholesale S&P Downgrade Of Europe Will Be Devastating
A day when everything that could go wrong for the euro and eurozone has just gotten worse. Hours away from the completion of the summit, whose failure will unleash a nuclear bomb of serial downgrades by S&P (let along expose frauds such as Sarkozy and Olli Rehn who claim, yet again, that the world will end a solution is found), The Telegraph writes that the summit is already in tatters after a rebellion and threats by Finland, Holland and Ireland are poised to scuttle the summit. Louise Armistead reports that 'Finland’s grand committee said decisions made by the ESM – the eurozone’s permanent bail-out fund set for launch in 2012 – had to remain unanimous, and not changed to the “qualified majority” that French president Nicolas Sarkozy and German chancellor Angela Merkel have agreed. The Finns are backed by the Netherlands, which fears proposals to withdraw veto powers from the ESM is an erosion of democracy and would make it vulnerable to funding bail-outs without recourse. Meanwhile, the Irish want to block plans for the “convergence and harmonisation” of the eurozone’s “corporate tax base”. The rebellion is a serious threat to German and French plans to sign treaty changes today along the lines laid out in their joint letter on Wednesday. In it, the leaders said they hoped all 27 European Union countries would sign.' And since this is the only option to bypass a popular vote, the mere thought of which would destroy the Eurozone in a flash, and since Finland and Holland are two of the core funders of the ESM (RIP EFSF), it means that the Greek scheme of playing chicken with the Eurozone, has now been adopted by everyone else in the core. In the meantime, time for the Euro is running out with less than 24 hours left until midnight on Friday, and absent a complete consensus, the summit is as good as dead, something we expected a week ago and were heckled for by Bloomberg TV. Good luck Europe - use those 24 hours wisely.
Incidentally, to all the pundits who claim a universal downgrade by S&P of Europe's sovereigns and banks will have no impact, we say it now officially - you are all a bunch of idiots and hacks. Unless one has read every single bond indenture and loan doc of the affiliated entities, and knows for certain that there will be no springing rate hikes, collateral demands or margin increases in the case of a downgrade (which is the case in about 60% of investment grade and AAA credits), then all those spreading baseless propaganda and a false sense of calm should be fired immediately for spreading blatant disinformation. Please go ahead and tell AIG, whose collateral call waterfall started once its was cut from AAA by the rating agencies, AIG's shareholders, and America's taxpayers that that particular downgrade was irrelevant.
We are waiting.
As for the matter at hand, more from Telegraph:
As talks continued early into this morning, Germany remained opposed to both giving the ESM a banking licence - a move that would allow it to access funds from the European Central Bank – and to the issue of joint Eurobonds.
Since the broad plans include the establishment of a new financial transactions tax, a British veto was expected. Yesterday David Cameron again said he would have “no hesitation in vetoing a treaty” if it harmed the City, while British officials were said to be seeking a promise that “essential economic interests of non-euro member states are fully protected”.
Jean-Claude Juncker, head of the Eurogroup bloc of finance ministers of eurozone states, said he would “not accept” summit diversions about what “the UK will not do what all the others have to do”.
However, Mrs Merkel and Mr Sarkozy have urged agreement from the 17 eurozone nations. Mr Sarkozy said: “If we do not reach a deal, there will be no second chance.”
Either way, even if there is a compromise, it appears that another summit will have to be drafted post haste to iron out the details:
But efforts to make the ESM more powerful and responsive formed a key plank of the summit aims which will now have to be watered down if the rebellion is not assuaged.
Experts warned that France and Germany’s plans were inadequate, anyway.
Raoul Ruparel of think tank Open Europe said: “Rather than focusing their energies on the key issue at hand – avoiding immediate crisis – France and Germany have tried to secure another couple of changes which they are keen on, namely the harmonisation of corporate tax bases and the use of majority voting for ESM decisions. Unfortunately, this looks to have backfired by stoking the anger of Ireland and Finland… [creating] another obstacle to forming a lasting agreement.”
As for the final question, the one that scuttled the EFSF, of just who will provide the funding for the bailout, also known as the unsolvable math problem at the heart of the crisis, well, that is never going to get answered unfortunately. Because the answer does not exist.