Roger Bootle on the European Crisis Deal: Get Austere or Die Trying
Here’s Roger Bootle talking to Bloomberg’s Maryam Nemazee about the deal hammered out yesterday to ‘save Greece.’ He is quite sceptical. The 120% debt to GDP figure that the deal is predicated on reaching is still high and assumes a benign economic environment. Bootle believes these assumptions are rosy given the negative impact fiscal consolidation will have on growth.
Separately, I have seen a number of other threads on the crisis. Most of the commentary has been negative. One would never know this given the incredibly bullish reaction in the markets. Here are the most interesting threads:
- The Economist says “The euro deal: No big bazooka”. They reckon “Europe’s leaders have agreed on how to prop up the euro. For now”. However, they see this deal as another extend and pretend exercise. Note, Brown Brothers Harriman mentioned in their morning note that this was the 14th emergency summit. Wow, that’s a lot of extending and some serious pretending. Can they keep it up?
- In the UK, according to the Guardian, the British government asked for and got a seat at the negotiating table even though French President Sarkozy asked Prime Minister Cameron to butt out. David Cameron urged Merkel to let central bank play greater role in the future of Euro’s emergency activities.
- The Telegraph’s Ambrose Evans-Pritchard says “Europe’s grand gamble risks failure without ECB” taking the line that David Cameron took to Brussels.
- In Germany, Der Spiegel remarks that countries outside the euro zone are sitting pretty while inside the euro zone a two class society has developed (link in German).
- In Ireland, David McWilliams wonders why Ireland is seen as a model for the euro zone periphery. He writes: “When you walk up one of Ireland’s deserted main streets, it is difficult to reconcile the talk of Ireland doing well and being the model for other European countries to follow with the reality of living here. The reality here is that retail sales have collapsed and are not recovering. Anyone dependent on the domestic economy is just about surviving. No credit is being made available to anyone and unemployment is devastatingly high, while emigration continues apace. That is what is going on in the “Real Ireland”.”
- And in Spain, El Pais writes “there is no plan B (link in Spanish).” They say that in may, Zapatero had to get austere and that didn’t work. Now the Germans and the French want the same jujitsu plan for the Italians. “That’s what was on the table yesterday in Brussels.” What about a backup plan? There is none. “Europe does not know if this is a fiscal crisis or a banking crisis," said Charles Wyplosz.
Roger Bootle says a breakup of the euro zone will happen on weakness. He argues "you cannot get to prosperity by stopping spending". Well, Euroland is going to try. Forget about the ECB. Forget about getting the surplus nations spending. For the euro zone, it’s get austere or die trying.
Bootle video below