The next day at first round of the French presidential elections was a black Monday for the markets of the old continent. Among the operators we talk about Risk-off: stock markets down, less safe bonds down, spreads rising and Bund yields at historic lows on safe haven maturities of 5 and 10 years. But if so far the worries came from the peripheral countries, with Spain in the lead, and were concentrated on the banking system and the failure to achieve the budgetary targets, towards the end of last week the mood changed and in the wake of the French electoral result the contagion has also overwhelmed the "core" countries, those countries that until now had not been touched by a climate of distrust.
And to think that a ray of sunshine had arrived from the IMF over the weekend with theannouncement ofincrease in financial resources to 430 billion euros in case of need for countries in crisis. No way, the storm has returned to the European financial markets.
The events of recent days have brought to the fore doubts and questions that the two injections of liquidity from the European Central Bank (lter) had only temporarily removed from the financial markets. In Europe, the problem is not fiscal discipline, but the absence of growth.
The crisis in the Euro area, among other things, hurts continental politicians: every time it is called to vote, public opinion gives anti-euro signals. We see it in Holland, a country that does not have major problems either with a deficit (estimated at 4,6%) or with debt (equal to 65,2% of GDP) where, to put it mildly, it is hard to find an agreement on the budget, so much so that the Premier Rotte was forced to resign. The prospect for the northern European country is that of elections immediately after the summer and a probable one downgrade of rating agencies. The electoral distrust for the European institutions is even clearer in France, not so much (or not only) for the defeat in the first round of Nicolas Sarkozy, Germany's iron "recommended" by Chancellor Merkel, but above all for the clearly anti- pro-European which brought Marine Le Pen's far right to almost 20%.
At this point the question that arises is: but it's really worth staying in the Euro? And why make so many sacrifices in terms of growth to stay in the Euro? Wasn't it better before?
Looking at the graph (Pmi index of purchasing managers) Euro-enthusiasm is fading. Also in Germany the data onPurchasing Managers Index for April it fell sharply to 46,3 and a reading below 50 portends a contraction.
The Advise Only blog has already written about disastrous effects of a country abandoning the Euro or the failure of the single currency project but, in the face of these signs, it is certain that we cannot remain impassive.
European politicians, and I am addressing above all the trio Merkel, Monti and Sarkozy they should receive and translate these signals. Austerity at any cost is not the solution to the crisis, does not lead to correcting the structural problems of the Euro but rather, in this phase, aggravates them. The choice to introduce into our Constitution theobligation to balance the budget if the road to reach it is a continuous increase in taxes, just as Tito Boeri and Fausto Panunzi wrote in a post on lavoce.info.
I fully share the comments of some economists (Megan Greene in an article in the Independent) who are emphasizing the fact that the Euro crisis is not just a debt crisis resulting from poor fiscal discipline (the German thesis) but a crisis of “growth”. As Krugman argues: Austerity without economic growth generates a vicious circle that worsens the disease it seeks to cure.
Will European leaders be able to break this vicious circle?
