A rollercoaster week for the financial markets. The detonator was, in my opinion, the European decision to declare Greece quasi-bankrupt. The creditor banks were asked to "voluntarily" write down their claims on Greece by 50%. Thus Europe ended up agreeing with the markets that had anticipated this devaluation and repeated the mistake made by the USA when they let Lehman Brothers go bankrupt in 2008. And the markets, being right on Greece, focused on the subsequent cases, i.e. on Italy, considered to be the next candidate for quasi-bankruptcy.
Of course, our Government has given substantial help to the speculation against us. With a mixture of political impotence and economic incompetence, the Government let the days go by without taking some of the (few) measures announced in the letter of intent that Berlusconi had delivered to his European colleagues. The final decision was the writing of another letter of "good" intentions, approved by the Council of Ministers and brought to the G20 in Cannes. Europe had to endorse this new letter (faute de mieux), in order not to incite speculation against the bonds of the Italian states.
The week ended better, thanks to the hopes of an intervention by the International Monetary Fund and the decision of the ECB to reduce the cost of money. This decision, with which Mario Draghi inaugurated his presidency, was a happy find, presumably thanks to Trichet who allowed his successor to start his mandate on the right foot to curry favor with the markets.
However, this decision will not be enough to stop speculation against us. It is necessary for the countries under attack (Italy in the first place) to give real proof of determination in tackling their structural problems. It is necessary that the governments that have shown themselves incapable of dealing with the crisis hand over to new governments. It is necessary that Europe, having taken note of these determinations of the countries under attack, guarantees the sovereign debts of all the countries, just as the Federal Reserve guarantees that of the USA. And indeed, interest rates on US Treasury bills have remained low, despite the appropriate depreciation that the rating agencies decreed at the time for the US economy.
Will Mario Draghi be able to impose this vision on his German colleagues? We sincerely hope so, because he has the skills and because it is the only way to save Europe and avoid a future depression.
