Countdown to crisis: Do we really have 7 days to save the Euro?


Or are we destined to lurch from one deadline to the next? We ask the experts

The slogan was “Ten days to save the Eurozone”. Then nine. We now have seven days to avoid meltdown. The moment of destiny is the one-day emergency summit on the 9th December in Brussels.

But is the deadline really credible?

Dr Eamonn Butler of the Adam Smith Institute is unimpressed by the artificial timeline: “Now it’s just ‘seven days to save the euro’, because the next big crisis meeting is on 9 December. But that meeting will do no more than all the other crisis meetings in the past.

“There will be lots of talk about solidarity, various ‘new’ sums of bailout money will be discussed, the markets will be reassured for a day – but then everyone will realise that nothing concrete is being done to sort out the mess. Until Eurozone countries start living within their means and coming up with credible plans to get out of debt, the euro will lurch from one crisis to another.”

“What the Eurozone needs is for the Germans to put their hands in their pockets”

Will de Lucy

Richard Driver, analyst at Caxton FX, agrees. “This 9th December deadline is over the top; progress at the Summit would be much-needed and the market will certainly panic in its absence, but the euro won’t collapse as a result. This is just an attempt from Ollie Rehn (EU Commissioner) to ramp up the pressure on finance ministers to reach some agreement.

“This debt crisis won’t be solved in 10 days; it will be roll on for years.”

British politicians refused to be drawn on the timeline, but there were clear indications that preparations are being made for worst-case scenarios. Mervyn King yesterday revealed the Bank of England was making “contingency plans” for another Eurozone default.

King refused to speculate as to whether one or more Euro exits was likely: “There are many ways in which the future could play out. Maybe it [the Eurozone]won’t break up, maybe it will continue in various forms, but maybe there will still be questions of default.”

Meanwhile, Finnish officials admitted yesterday they had begun to calculate the cost of a Eurozone break-up. Prime minister Donald Tusk of Poland, which holds the rotating presidency of the EU, said the “jokes were over” and that there was time for “no more delays” in saving the Eurozone before the 9th.

“’Decisions or, God forbid, their lack could decide the fate of the continent” he intoned.

The sovereign bond yields illustrate the severity of the current crisis. Louise Cooper of BGC Partners pointed out that the yields on 10 year debt are significantly up on even a month ago – Italian 10 year yield 6 per cent a month ago (6.7 per cent now), Spain 5 per cent a month ago (5.9 per cent now) and France 2.9 per cent a month ago (3.1 per cent now). She warned: “Fear is stalking Euro sovereign debt markets.”

On the positive side, France completed a successful debt auction.

Opinions on the necessity of resolving matters by the 9th December seem to vary wildly.

“We have been through a period of crisis for the past three months”

Stephen Archer

Will de Lucy, founder of Amplify Trading, tells LondonlovesBusiness.com: “I don’t believe in the idea of ten days to fix the Eurozone. It’s a nice sounding tagline which the media have got hold of. In nine days time, if there isn’t some magical plan, you’ll hear another deadline.”

But he says the concept of artificial deadline might be useful, especially if hyped by the media: “What the Eurozone needs is for the Germans to put their hands in their pockets. Chancellor Merkel is fighting forces of domestic politics on one side and the European Commission on the other. To get the Germans to act they really need to be shaken into fear. The situation needs to get really bad before positive action can be taken by the Germans.”

By contrast economist Stephen Archer tells us that the deadline has become a self-fulfilling prophecy. “The ‘ten day’ mantra may be artificial and arbitrary. But the market has started to look to politicians for an decisive solution. We have been through a period of crisis for the past three months. The Eurozone leaders have been paralysed in reacting to the issues. We can’t keep waiting. The Eurozone is in danger of freezing up.”

He warns that market sentiment is dominating the crisis and that the fundamentals of economies such of Italy are good enough to weather the storm, if short term help can be provided, and the political issues resolved. “If the right decisions are made we may see investment and growth increasing. But they’ve got to be made soon.”

Butler of the Adam Smith Institute prefers to look at a different timeline: “The euro was a turkey right from the beginning. It got fattened up by a decade of debt, but now I don’t think it will survive Christmas.”