Debt crisis: First paralysis, now panic
11 August 2011
Political dithering and rumour-mongering have caused dramatic falls in global markets. Fiscal integration will be necessary if the euro is to survive the storm. And Angela Merkel is the only political leader who can make it happen, says ABC's editorial.
The period of calm which followed the European Central Bank’s intervention on Monday did not last long. On 10 August markets worldwide were swamped by an unprecedented wave of panic, whose like has not been seen since the financial crisis of 2008. This was notably the case in Madrid, which has lost 17 points in only nine sessions. Fears that speculators will now target French debt have only added to the chaos.
The French president responded rapidly by cutting short his holiday, a decision that speaks volumes about the gravity of a situation in which positive statements issued by ratings agencies have not been enough to calm investors. Sarkozy is certainly not the only political leader who will have to cut short his holidays. The European Commission president, José Manuel Durão Barroso, should return to Brussels as soon as possible. And Prime Minister Zapatero ought to get back to work, especially when you consider the impact of these disastrous events, which will plunge more families into poverty, on the Spanish economy and financial system.
It is clear that the goal of the July 21 summit -- avoiding the spread of contagion to Spain from countries in difficulty -- has not been attained. The European Central Bank had to intervene at the last minute to save Italy and Spain, which are the eurozone’s second and third ranked economies. Now France, its second ranked economy, is under sustained attack. When is Germany, which remains insolently prosperous, going to remove its head from the sand?
Until now, Merkel has, along with the majority of leaders on the European Council, reluctantly agreed to sanction bailouts – which in the case of Greece did not work. As a result, she is facing a domestic political revolt that is increasingly threatening the balance of power in Germany. All the indications are that we are fast approaching a moment where there will only be two possible solutions: comprehensive budgetary integration in the eurozone – an option that has been criticised by many German economists – or an end to the single currency, which will in turn result in the demise of the European project.
To date, Chancellor Merkel has demonstrated an unwavering commitment to Europe, but she is also capable of changing her mind, as witness her sudden about-turn on an issue as serious as nuclear power. Once again, the fate of Europe will depend on a decision to be taken in Germany.