I’ve given up following the Eurozone crisis on a daily basis—as has much of the media it seems—because it has settled into Groundhog Day territory. Greece—still a basket case. Spain—still having trouble selling its bonds. Italy and France—still behaving irresponsibly. Germany: cough up more dough you tight-fisted Teutonic bastards. How long can this circus go on? It’s been going on for better than two years now at least, and perhaps the crisis might well be patched up for a long while yet.
But not forever, and the end of “forever” may be coming into sight. Germany has finally gotten France over the last few weeks to tell the Greeks that “No” really means “NO” about further bailouts. The New York Times reports ominously that more and more multinational companies are beginning to prepare for Greece to exit from the Euro. This sounds really serious:
Bank of America Merrill Lynch has looked into filling trucks with cash and sending them over the Greek border so clients can continue to pay local employees and suppliers in the event money is unavailable. Ford has configured its computer systems so they will be able to immediately handle a new Greek currency.
Walter Russell Mead offers a good roundup of the scene this morning, including this warning about Spain:
Meanwhile, Spain’s situation continues to deteriorate, with the country visibly spiraling toward some kind of bailout. Any new funding from the ECB will come with much tougher conditions than the easy funding that got Spain (and Europe) through the summer without a meltdown. . .
But the real ground zero of the Eurozone crisis may be shifting to France:
But without any doubt, the worst news is coming from France. It’s not that France is headed down the tubes like the PIIGS. Yet. But with a major French bank (Credit Immobilier de France) needing a bailout, unemployment rising above the psychologically crucial 3 million mark, and a stubbornly high budget deficit despite a round of tax hikes and spending cuts, things are not looking good. And as Businessweek reports, bond investors are showing early signs of skittishness. French debt currently earns only about a two percent interest rate; it wouldn’t take much for investors to push those yields above 4 or even 5 percent if perceptions of Europe and France continue to deteriorate. France has benefited from a “safe haven” perception, but that perception looks vulnerable to the autumn storms that now seem to be sweeping toward the EU.
This may explain why France has joined the Germans in telling the Greeks that the game is over for them. The French had been playing something of a double game up to this point, but even the new French socialist government may be starting to get the message that they’re in deep deep trouble themselves. Dan Mitchell offers additional observations in his indispensible blog. Both Mitchell and Mead say the thing to watch is French bond rates. If they spike like Spain and Italy, the next inflection point of the Eurozone crisis will be at hand.
What might set this off? Hmmm—how about the prospect that Obama is re-elected?