Like earlier summits, they met. They talked. They agreed to talk more and solved nothing. Once again Europe laid an egg.
In fact, in 2011 alone, EU leaders held 19 emergency meetings/summits, proposed dozens of rescue packages, made as many promises, yet are back at square one.
It reminded some of Variety's October 30, 1929 post-market crash headline: "Wall Street Lays an Egg."
After the latest Brussels summit, business publications hinted at systemic failure. On December 12, a Bloomberg editorial headlined, "Europe's Fiscal Pact May Solve Next Crisis, Not This One," saying:
Summit leaders "asked the wrong questions - then failed to answer even those." Moreover, whatever they agree on won't stick. It didn't before and won't now.
"In concentrating on long-term fiscal issues, the leaders mostly ignored the crisis around them." Putting off for later what's needed now never works. The summit made only one thing clear. EU leaders can't shoot straight. Moreover, they're aiming at the wrong targets.
On December 11, Britain's Financial Times also highlighted failure in an editorial headlined, "Europe fails to reach summit," saying:
"It should have been the climax to Europe's thriller." Instead, it "was entirely predictable in its inconclusiveness." As a result, problems remain unresolved.
"Most importantly, if the current crisis was sparked by the link between sovereign and bank risk, does it make sense to intensify that link?" Saving the euro "amounts to little more than sleight of hand (strategy) in a crisis where clarity and resolve would do much more to restore confidence."
In fact, no "grand plan" emerged. Instead, talks ended by kicking the can down the road without resolution. At best, only more time was bought, but how much is uncertain, given a festering crisis getting worse, not better.
Summit leaders only announced what already exists - the Growth & Stability Pact. It's been around since monetary union. Claiming it'll now be enforced repeats past failed promises. Its mandate from inception was repeatedly violated and will again be now.
In fact, in 2003, Germany and France missed fiscal targets. No penalties were imposed. According to Center for European Research chief economist Simon Tilford, Brussels produced "little more than a stability pact with lipstick."
It did nothing to address Eurozone banks having to refinance 750 billion euros in 2012, one-third of it in Q I. Their deleveraging problem also faces overwhelming challenges without additional capital. Radical austerity won't help. Nor will failure to address growth strategies to revive sick economies.
After the summit, Moody's said measures announced fell short of "decisive." As a result, it'll review ratings for all EU countries. This follows S&P's December 5 move, putting 15 Eurozone nations on "credit watch" with negative implications.
Bond markets reacted with sharp yield rises. Germany and America were exceptions, signaling a flight to safety. Notably, there's now about a 75% inverse correlation between 10-year Italian-German yield spreads compared to -5% historically.
Moreover, China's exports fell to their lowest level since February. Year-over-year, its trade surplus plunged 35%. Property prices fell three consecutive months, and new housing starts are half their first half level. In addition, India's industrial production dropped for the first time in 28 months year-over-year.
On a month-over-month basis, it's down 4%, the fourth straight monthly decline. India, in fact, may be in recession or heading toward it.
Australia's October trade surplus hit its lowest level in eight months, and mortgage loan values dropped 2.5% as housing there feels pressure.
Japanese November consumer confidence fell for the first time in seven months. Korea just lowered its growth forecast. On December 11, Financial Times writer Robert Wright warned of a "Wave of insolvencies loom(ing) for shipping industry," saying:
"Fears are mounting that the eurozone financial crisis could spark a fresh wave of shipping insolvencies, after funding problems at many leading European banks accelerated falls in vessel values, triggered by the worst conditions in some shipping markets in 25 years."
Already, Korea Lines and General Maritime, "one of the best known tanker operators," filed for bankruptcy protection. Look for credit squeeze trouble to affect others.
Germany's DVB Bank financial expert Dagfinn Lunde said, "I don't think we will for many years have a normally functioning market." Others see banks forcing shippers into a perilous downward spiral. "There will absolutely be more bankruptcies," said Harald Serck-Hanssen, shipping head for Norway's DNB, one of the world's largest shipping lenders.
Moreover, the OECD's leading indicator fell 0.3% in November, its 8th consecutive decline to its lowest level since November 2009. Europe showed most weakness at 0.7%. America was down 0.1% and 0.3% year-over-year.
Notably, it last occurred in November 2007 before global crisis conditions emerged. When this metric's below zero year-over year, downturns usually follow. After Q III's $2.4 trillion drop in household net worth, the most since 2008 Q IV and fourth largest contraction ever, expect nothing good to follow.
Systemic Risks are Greater Than in 2008
Moreover, whatever impacts Europe spreads globally. Only lag times vary by regions and nations. European banks are about three times larger than US ones. What impacts them spells trouble everywhere.
At risk is systemic unravelling far greater than in 2008 because unresolved problems now are greater. Compared to 2008 and early 2009, the cost of insuring against default (CDS premiums) soared.
Insuring $50 million in Belgian, French, German, Italian and Spanish sovereign bonds in equal amounts exploded from $28,649 then to $2,258,200 now - a nearly 80-fold increase because of global meltdown risks.
In fact, bailouts exacerbated crisis conditions. Adding more debt worsens them like overeating defeats losing weight.
As a result, Europe's sovereign debt crisis remains greater than ever. Duct tape solutions never work. At best they buy time at the expense of eventual trouble too great to resolve. It's just a matter of time.
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|Allen L. Jasson|