The solution to Europe’s sovereign debt crisis is not that difficult to work out although selling the notion to Germany is. If Europe is leave this crisis with political and economic credibility intact the way out demands a European solution. The IMF is already involved in Europe’s mess but Europe’s problem should not require, other than minimal support to none Euro members plus those for which it has already pledged help, more IMF support than deemed absolutely necessary. Time is running out – if the Euro is to survive and the political culture and respect from the rest of the world for the EU is to be retained intact then the solution to Europe’s crisis must come through partner agreement that enables the European Central Bank to be given a proper mandate to act.
Meanwhile all that Europe has essentially agreed so far is what in air traffic parlance would be regarded as achieving a holding pattern. The EFSF [European Financial Stability Facility] and the planned EFSM [European Financial Stabilisation Mechanism] have and will continue to play a part of course but the real answer to this crisis is to let the European Central Bank acquire and support a very large proportion of Eurozone debt. While Greece remains a large thorn in the side of progress and over which I suspect some kind of tentative agreement covering the next tranche of required funding may soon be imminent [assuming existing bondholders are after all prepared to accept a haircut well in excess of 50%] I suspect that it is time to say after this NO More! As it should never have been allowed in I suspect that at some point over the next two years Greece will leave the Euro although I am bound to fear that if it does Europe may then face an additional set of political problems.
Howard Wheeldon is the Senior Strategist at BGC Partners
