At long last the euro is finally being saved

Why did Angela Merkel, the German Chancellor, finally "blink in earnest"

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The euro is finally being saved

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Badly needed banking bailouts from the ECB were thus being added to sovereign debt balances. These growing debt levels were affecting sovereign bond costs making raising money in the markets prohibitively expensive. This increased expense was bloating day to day government running costs despite the fact that "austerity" measures were being demanded by Germany. The whole cycle was deflationary, self defeating and illogical. Friday's agreement changed this nonsense and in summary has brought about two important "game changing" initiatives:
 
1.            Banks can receive bailout funds from the ESM without affecting sovereign borrowing levels.
 
2.            The new ESM fund can buy sovereign bonds directly thus lowering state borrowing costs.
 
As a result the risk of banking failure has been diminished and governments will be able to raise funds at reasonable rates when the need arises.
 
Now by no means am I suggesting that everything about the Euro crisis is behind us but using the words of Churchill: "now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning".
 
 Finally the banking aspect of the problem has been separated from the sovereign bond element of the crisis. Why the process to identify and solve this fatal flaw in Euro policy has been so tortuous I will never know but better late than never I say. Politicians can now go on summer vacation happy that when they return in September a template in now in place upon which to build a secure and stable structure for the future maintenance of the Euro currency. They will thus be in a position to remove for once and for all the market risk of a potential demise of the Euro and with it a total collapse of the economies of the fledgling European Community. Such a prospect was incomprehensible and as a result of Friday's action by the European governments I think we can start to put this threat behind us. Will Mr. Market agree? That remains to be seen.
 
(C) 2nd July 2012 Christopher M. Quigley B.Sc., M.M.I.I., M.A.

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