Euro 'Solution' Making Less Sense
12/26/2011 6:30 am EST
Despite going over the December 9 Euro treaty many times, MoneyShow's Jim Jubak can't seem to find any sense in it. He explains his reasoning here.
What really is starting to puzzle me or amaze me about the Euro debt crisis is that the leaders of the Eurozone continue to come up with solutions that don't make any sense, that the market tells them don’t make any sense. They don’t even work politically in terms of their own organization, and yet they continue to pursue this.
Let’s take the great "No Debt Left Behind" treaty that they decided that they were going to implement at the summit on December 9.
The idea of this treaty was that all the people who would sign it—and at that point looked like 26 out of 27 countries, everybody except the UK—that they would make some kind of pledge to hold their deficits of no more than 3%, or to a 0.5% structural deficit. And that they would somehow enshrine this in their constitution or somehow make it binding. And there would be some mechanism for enforcement.
Everybody at that point, the 17 Euro countries and nine of the ten European community countries that don’t use the euro, said that they would sign on. Well, immediately after people went home you started to get pushback.
For example, the Dutch opposition party said, "Hey, this is a really bad idea. We’re going to attack the government on this and we would like a referendum." The Irish opposition said, "We think that we are legally entitled to a referendum and we have to have one." Then there was Norwegian opposition, etc, etc.
This started to look a little shaky...and what is interesting is that on December 17, there was a big meeting of the European finance ministers followed up by a conference call on December 19, and they came up with a way to modify this plan. It didn’t modify the treaty at all.
It basically said, we’re going to come up a draft by January, and we’re going to have a treaty signed by March. The modification was, well, we don’t need 26 countries. We don’t even need 17. We don’t even have to have all the Euro countries sign on. In fact, we’ll be good to go. This treaty will take effect if nine countries decide they are going to do it.
So they’ve gone through the big “hoo-ha” at the December 9 summit, and it was we needed 27...but the UK pulled out. We only had 26. Then that was going to be enough...and then 17 and who knows what the peripheral countries, the countries that belong to the community but don’t belong to the Eurozone would do. And now we are down to nine.
There is something very strange going on here, not in the sense of countries deciding they don’t want to do this, but there being no response to this. How can you possibly just be sitting there going, "Our big plan now is so shaky. We’re so uncertain about its prospects of passing that we’re okay if just nine of 17, not all 27, sign onto this."
There is real trouble here. I think the trouble is just a failure to recognize how really unpopular this idea of turning sovereignty over to an unspecified Eurozone body is with people who are watching what’s going on in Ireland and Portugal and Greece.
That’s the big puzzle as we try to figure out where the Euro debt crisis goes next.