In their nineteenth meeting since the crisis began, the Europeans took another step towards a more Federalist banking system last week. Taking the decisive step of allowing rescue funds to go directly to failing banks when needed, and to free countries that receive financial aid from being tied to strict austerity measures.
Southern Europe snickered as the German soccer team lost to debt-laden Italy, which in turn lost Sunday’s Euro championship to debt-engorged Spain. This occurred against a backdrop of news reports declaring that the anti-austerity troika, France, Spain and Italy, had ganged up on Germany the summit.
Yet, Germany won again.
Sure, Spain clinched the soccer championship. But today, the rates on their bonds remain above 6%. Germany committed no new funds to Europe’s bailout mechanism. Germany agreed to nothing concerning the mutualization of debt via Eurobonds or anything similar. They agreed only on granting the ECB power to regulate eurozone banks. In other words, Germany lost the soccer tournament. Yet won another round in the euro fiscal crisis contest.
And while last week’s announcement was big, the European Financial Stability Facility remains woefully underfunded to contend with Europe’s massive debt overhang. Austerity, the eventual path down which Europe must walk, will find Europe facing a prolonged depression as the debt is worked off.
Europe’s problems will eventually become ours. As a trading partner and vast consumer market place for our goods and services, the Europeans are rather like our slightly more sophisticated, prep-school bred twin brother. A little spoiled. Often snobby. But beloved, nonetheless. When he is riding high, we are usually right there with him. When he is down and depressed, it is hard not to feel a bit of that, as well.