“September will undoubtedly be the crunch time,” one senior euro zone policymaker said. “In nearly 20 years of dealing with EU issues, I’ve never known a state of affairs like we are in now,” one euro zone diplomat said this week. “It really is a very, very difficult fix and it’s far from certain that we’ll be able to find the right way out of it.”
As Europe’s fight with the twin demons of logic and math continues, time is running out. And as eurocrats take their mandatory vacations for a job well done and spend the next two weeks lounging on some Mediterranean island or listening to opera, Europe will enter hibernation mode, courtesy of a slow down in sovereign bond issuance, all of which however will change very quickly once September rolls in which as Reuters describes, “is shaping up as a “make-or-break” month as policymakers run desperately short of options to save the common currency.” It is then that we will find if all that money spent on newsletter promoting active prayer to push the hands of central planners in that direction or the other, was well spent, or just thrown in the same cash black hole which is the final restring place for hundreds of billions in “bailout money” which has achieved nothing but perpetuating the same destructive behavior that it was meant to change.
Reuters explains why September will also be known as the popcorn month:
In that month a German court makes a ruling that could neuter the new euro zone rescue fund, the anti-bailout Dutch vote in elections just as Greece tries to renegotiate its financial lifeline, and decisions need to be made on whether taxpayers suffer huge losses on state loans to Athens.
On top of that, the euro zone has to figure out how to help its next wobbling dominoes, Spain and Italy – or what do if one or both were to topple.
Since the crisis erupted in January 2010, the euro zone has had to rescue relative minnows in Greece, Ireland and Portugal as they lost the ability to fund their budget deficits and debt obligations by borrowing commercially at affordable rates.
Now two much larger economies are in the firing line and policymakers must consider ever more radical solutions.
Following a year of real-time failed rumor, innuendo, speculation, prepackaged ‘bankruptcy that is not a bankruptcy’ negotiations, and much more, Europe has figured out what was patently obvious to everyone. This:
“The euro zone does not seem to have enough cash in the current setup to deal with a scenario of Spain and Italy needing a rescue, and a sense of doom is growing among some policymakers. Fighting the crisis, said the euro zone diplomat, is like trying to keep a life raft above water.
“For two years we’ve been pumping up the life raft, taking decisions that fill it with just enough air to keep it afloat even though it has a leak,” the diplomat said. “But now the leak has got so big that we can’t pump air into the raft quickly enough to keep it afloat.”"
Two bailouts in, and one bankruptcy, and Greece is fixed. Not
“Compounding the problems, Greece is far behind with reforms to improve its finances and economy so it may need more time, more money and a debt reduction from euro zone governments.
If Greek debt cannot be made sustainable, the country may have to leave the euro zone, sending a shockwave across financial markets and the European economy.
Athens wants two more years than originally planned to cut its budget deficit to below 3 percent of GDP, so as not to impose yet more spending cuts on a country which is already in a depression.
This would mean Greece’s 130 billion euro second bailout package may need to be increased by 20-50 billion euros, according to estimates by some euro zone officials and economists, and there is no appetite in the euro zone to give Greece yet more extra money.
More importantly Greece needs to bring its debt, which is equal to 160 percent of its annual economic output, under control. This means euro zone governments, which own roughly two thirds of it, may need to write part of it off.
Private creditors have already suffered a huge writedown in the value of their Greek debt holdings but so far euro zone taxpayers have not lost a cent on any of the bailouts.”
So if Greece “agrees” to more austerity, how long until the rioting paralyzes the economy again, and a new government is elected, one in which Syriza has absolute majority, and the entire June fiasco with Greece potentially leaving the Eurozone out of its own volition is replayed? Not too long it seems. Especially since Schauble, who this weekend has perfected the art of throwing water in people’s faces, just said there will be no more concessions.
But Greece is, once again, just the beginning.
Sept. 12 is a crucial date in the European diary. On that day the German Constitutional Court is scheduled to rule on whether a treaty establishing the euro zone’s permanent bailout fund, the 500 billion euro European Stability Mechanism (ESM), is compatible with the German constitution.
A positive ruling is vital, because Germany is the biggest funder of the ESM, and the euro zone would be powerless to protect Spain or Italy without the ESM.
On the same day, parliamentary elections are held in the Netherlands where popular opposition to spending any more money on bailing out spendthrift euro zone governments is strong. The Dutch vote may complicate talks on a revised second bailout for Greece, which also has to be agreed in September.