France has become officially the next target in the orchestrated attack to the Euro. Sarkozy had to fly back from holiday and announce a draconian austerity package in a rush amid rumours that France was on the verge of losing the AAA rating. Few hours later rating agencies confirmed the rating although damage was done and another major blow was dealt to the credibility of the Euro.
France and Germany have become after the explosion of the Italian crisis the only two left with capacity to back the Eurozone and bailout if necessary everyone else even if it could cost them the AAA rating and a dramatic jump in their debt ratio to Italian levels.
This series of events is getting more and more dramatic everyday and it is hard to think they are exclusively movements due to speculation on sovereign ratings. It seems the wolves are going straight to the jugular of the EU, Spain is not out of the woods at all but has been put in standby while the attacks are targeting the big ones: France and Italy. It does not mean that Italy is a poor victim of all this mess, It deserves being under attack after having lost a decade living well above its means. The apathetic population has always been more interested in petty local interests and absurd regional ideologies while ignoring the wider picture and the general rotten state of affairs in the country.
Joining the pillage of the public coffers in the interest of local and restricted groups of interest has been the main occupation of everyone, confident they could have gone stealing forever to their future.
None can be blamed for the sorrow state of the country other than the Italians who applauded and contributed to the degeneration of their own country. Foreign investors and bond vigilantes simply acknowledged and took advantage of the sorrow state of the country when they had motives to do it.
There is no doubt though that for some reason they are in a hurry to strike hard now.
There are only two exits, either there will be a strengthening of the EU with a single fiscal and economical policy for everyone which would be the end of the single nations’ capacity to deliberate laws or the Euro and the EU will break up. The first is the trend the EU and the ECB are trying to pursue when taking power in bailed out countries and dictating terms to local governments in exchange for bailout money in the case of Greece, Ireland and Portugal, or bond purchase programs as for Italy and Spain.
Germany is currently together with Slovakia and Finland opposing any further centralization or bailout intervention in a final attempt to prevent what it would become a transfer union where healthy countries will transfer their surpluses to sick countries in order to prevent a total collapse of the Euro. True that requirements now for transfers are getting tougher and tougher with practically a surrender of sovereignty in exchange for assistance, but still there is no guarantee that indebted countries will stick to the plan when bailouts will not be any longer urgent or that a new government will honour the same terms. The only way for the plan to work is to write down the contract in the EU Constitution and practically create a federal government dictating to every member state political and economical laws to be approved.
The other solution is to do what Europe has been doing in the last 2 years, kicking the can down the road, disburse money to indebted states only when strictly needed and find themselves in the same spot only few months after with a never ending crisis slowly draining the Euro.
To create a super-national entity with real power will require though a complex and lenghty procedure that will need the creation of a new European Constitution, the acceptance of every state to delegate power to the EU government and the acceptance of higher taxes, growing debt an big losses in the healthy states to support the dying indebted states.
Even if by miracle would everyone agree this would take years at best to be done and clearly we have only months left.
Default is no longer an option it was an option for Greece, Portugal and Ireland, but it something inconceivable for Italy and Spain unless there is a desire to trigger a new Great Depression.
An exit strategy is no longer available and in the following months the ECB will have to face dire decisions, it is clear now that the situation has passed the no-return point and that mentality in the ECB has switched to damage control mode.