Europe Overnight

European policymakers are trying to sway the vote in Greece.  From the Financial Times:

Senior European leaders are attempting to turn Greece’s repeat national election next month into a referendum on the country’s membership of the euro, a high-stakes political gamble that officials believe can win back voters disillusioned by the tough bailout conditions but eager to stay in the single currency.

José Manuel Barroso, president of the European Commission, made the choice clear on Wednesday, telling Greek voters the €174bn rescue programme would not be changed and that remaining in the eurozone was now in their hands…

…“The next election is going to be a sort of referendum election,” said one eurozone finance minister. “We are going to convey very clearly to the Greek people that if there is no stable government to implement the conditions of the programme then we are going to have difficulties and are going to have to adopt plan B.”

I thought the last election was supposed to be a referendum on Greece’s commitment to the Euro.  European policymakers fail to understand that they have provided the Greek people no way out – they are damned if they do, damned if they don’t.  Even if the Greeks overwhelming want to remain in the Euro, the austerity program guarantees ongoing recession, and the Greek people are being asked to commit to a program that is effectively already overtaken by events.  The deteriorating fiscal situation seems to guarantee a new program will be necessary in the months if not weeks ahead.  Would the rest of Europe agree to another bailout, regardless of whatever new conditions were required to get another deal done?  If the rest of Europe really wants Greece to stay in the Euro, I think it can only work with a program of bilateral transfers to Greece in exchange for radical, rapid restructuring of the economy.  Carrot, meet stick.

The rest of Europe might not think this is fair, but let’s be honest – ultimately, it wasn’t fair to bring Greece into the Euro in the first place.

On the issue of internal fiscal transfers, British Prime Minister David Cameron is joining the chorus of policymakers calling on Continental leaders to understand the extent of their problem:

“Either Europe has a committed, stable, successful eurozone with an effective firewall, well-capitalised and regulated banks, a system of fiscal burden sharing and supportive monetary policy across the eurozone or we are in uncharted territory which carries huge risks for everyone.”

That pretty much summarizes the situation.  The institutional structure, the fiscal plumbing, simply isn’t present in the Eurozone to adequately adjust for asymmetric shocks.  End of story.  Either get that structure in place or accept that the project is a failure.  Can Europe make such a transition fast enough?  Yes – with German leadership to offer a mix bilateral transfers, Eurobonds, and ECB commitment to stand as lender of last resort to all the region as a whole.  Economically possible and politically possible, however, are two different things.

Finally, the ECB has reverted to its usual helpful self.  From Bloomberg:

The European Central Bank is conducting a comprehensive review of all its policy tools and has no immediate plans to increase stimulus even as market tensions mount, two euro-area officials said.

The review, mandated by the central bank’s six-member Executive Board, intends to assess the effectiveness of its measures, including the bond-buying program and long-term refinancing operations, and is scheduled to be completed in June or July, said the officials, who spoke on condition of anonymity because the deliberations are private. A third official said the ECB may not consider taking any further policy action until July, and that the bank sees current market tensions as a way of focusing politicians’ minds on reform efforts.

Way to stay ahead of the central banking curve!  Maybe if ECB members just close their eyes, tap their heels together, and softly whisper “there’s no place like home,” the crisis will come to a sudden end.

Hey, it works in the movies.