EU Leaders Clueless As Borrowing Costs Soars

Italian and Spanish 10-year bonds dropped in value, while German bunds rose on Tuesday, pushing the difference in costs (yields) to 381 and 397 basis points, respectively – a record high since the euro was introduced 12 years ago.  Yet, top EU leaders still don’t understand what’s going on, and they still refuse to discuss the possibility of more national bailouts.

“Astonishingly, since our Summit the cost of borrowing has increased again for a number of euro area countries. I say astonishingly, because all macro economic fundamentals point in the opposite direction.”

Herman Van Rompuy

Well, well, well… Mr. Rompuy – you just don’t get it, do you? Ever since the Irish finance minister stated that “the worst is over” in December 2009 and the EU president Jose Manuel Barroso in September last year declared that the EU had survived the crisis, I’ve been wondering if these people are just ignorant, or if  they deliberately are speaking against better knowledge. Frankly, I’m still not sure.

In an op-ed published in several European newspapers, Tuesday, the president of the EU council, Herman Van Rompuy, writes that the behavior of the financial markets are “totally out of line” and that the rating agencies who have downgraded the credit ratings of countries like Spain and Italy have acted in a “ludicrous” way.

He did not mention that the Spanish premier minister last week called for early elections, amid growing public anger over soaring unemployment, caused by the austerity measures.

The true cause of market worries, in Van Rompuy’s view, is the aftermath of the financial crisis of 2008, and the interdependence with the debt-stricken USA.

“It is imperative to bear in mind that this is not a crisis about the euro,” he writes.

“In the aftermath of the financial crisis of 2008, all developed countries are faced with increased public debt. Given the interdependence of these economies, as we have clearly seen first hand in the European Union, it is in everyone’s interest that each country should find a solution to this burden, tailored to their own needs, which will have a direct effect on jobs and growth in the coming years. In light of this we are confident that the US will find a solution to their current stalemate for their own sake and for that of the stability of the financial market-at-large.”

“Economic growth has picked up in Europe and is on average 2.5% in Western European States. Those countries currently in loan programmes will see a return to growth in 2012. As soon as consumers and businesses see that debt levels and deficits are going down, this will have an extra positive effect of boosting consumer confidence and corporate investments. A win-win situation.”

Here’s a copy of Mr. Rompuy’s letter to who-knows-who: 

American novelist William Gaddis once said; “stupidity is the deliberate cultivation of ignorance.”

He may be right.

“What is this guy thinking?”

In that perspective, Mr. Rompuy seem to be a perfect illustration:

At a dinner for the EU leaders on June 23 – devoted to a discussion about the threat of Greek bankruptcy and new austerity cuts – Van Rompuy started to hand out a glossy brochure for the new €240 million  EU council building.

The brochure itself for the new EU summit venue, and Van Rompuy’s new office complex, is said to have cost €100,000 to print.

“[UK leader] Cameron and [German Chancellor] Merkel just looked at each other as if to say “What is this guy thinking?”” one EU diplomat said.

Adding: “It’s true that the building was planned a few years ago and everything, but you have to ask if it was a good idea to draw attention to it now.”

“When you see a document being circulated with a great glossy brochure about some great new building for the European Council to sit in, it is immensely frustrating,” David Cameron said afterwards.

“You do wonder whether these institutions actually get what every country and what every member of the public is having to go through as we cut budgets.”

It seems obvious that they don’t…

And – of course – no one will admit that the possibility of another (perhaps several) national bailout is being discussed.

Not even after Cyprus accidentally blew up their whole electrical system with 2.000 tonnes of gunpowder:

“With our inaction we are risking the ability of refinancing the state and the consequences will be instant and serious,” a statement from the largest Cypriot commercial bank says after President Demetris Christofias failed to put together a new cabinet over the weekend, according to the EUobserver.com.

And – of course – the EU commission is maintaining the same line as for other countries which ultimately were given a financial rescue package: Nothing of that sort is being discussed.

“The question of a programme of emergency aid is certainly not on the table,” Chantal Hughes, a commission spokeswoman for economic affairs says.

Certainly not…

UPDATE: According to Reuters, picking up on a story from Le Monde, on Wednesday, Nicolas Sarkozy wants to give Herman Van Rompuy the role as coordinator and spokesman for the eurozone.

Well, those two have, at least, the same fundamental understanding of how the financial markets works.

(God help us all!)

Related by the EconoTwist’s:

About these ads

10 Comments

Filed under International Econnomic Politics, National Economic Politics, Philosophy