The last battle for the Euro?
In the Euro crisis, the decisive battle is looming ahead of the EU summit in mid october. Given the desperate situation in Greece and the new escalation of the banking crisis, the Euro leaders muss take some tough decisions. They have to answer four strategic questions:
- Should the EU let Greece default? Or do we need a „reset“ of the current aid strategy, as the financial ministers suggested last Monday in Luxemburg?
- Should the EU help the banks, or should it rather try to stabilize weaker Euro states such as Italy and Spain, in order to prevent further contagion?
- Where should the money come from? Is it up to the ECB to pay, or should the EFSF finally step in, or do we need fresh cash from national budgets?
- Will the rescue measures be taken on a strictliy national basis, like back in 2008, or will there be a coordinated or even common approach, as Commission president Barroso suggests?
Today, there is no consensus emerging on theses crucial issues. On the contrary: It seems that there is a Franco-German rift. France wants a common approach with money from the EFSF, Germany seems to prefer more targeted action with national cash for (its) banks. The dispute will be on the table tonight, when Chancellor Merkel and President Sarkozy meet.
If Sarkozy loses this battle, the triple A rating of France is in danger – and thus the EFSF, which depends on France as well as on Germany. So there is pretty much at stake this time. The Euro zone cannot afford another Waterloo…
(This is a short English version of my most-read post this week. The original post – in German – can be found here.)