The coming failure of the euro zone bailout deal
Liam Halligan writing at the Telegraph is not at all convinced that European leaders have made progress in solving the debt crisis.
In fact, he's downright pessimistic:
Last week's eurozone "agreement", for all the related fanfare, was a case in point. Far from making the situation clearer, allowing investors to make considered assessments, this latest announcement made Western Europe's grotesque debt crisis even more acute, sowing further infectious spores of confusion.
The deal itself, unveiled dramatically in the early hours of Thursday, was met with the now obligatory "relief rally". The FTSE All-World equity index soared 4.1pc, helped by signs of renewed US economic growth. European bank shares spiked no less than 12pc on Thursday, as traders recognised, for all the official obfuscation, the latest dollop of government largesse.
By late Thursday, though, and certainly on Friday, the warning signs were there. Global bond markets, by character more sober and smarter than the excitable equity guys, were voting against the deal. This is alarming. For it is only by selling more bonds that the eurozone's deeply indebted governments can roll-over their enormous liabilities and keep the show on the road.
Some say Western governments shouldn't "accept" what the market says. "Who do these trading people think they are," I hear from the lips of the educated but financially-illiterate political elite. Let's be clear - if global bond markets stop lending to a number of large Western economies, we are in the realms of unpaid state wages and pensions, transport chaos and closures of schools and hospitals - sparking the prospect of serious civil unrest. Forgive my intemperate tone, but these are the dangers we face. And I'm afraid the only rational response to Thursday's announcement is that the probability of such undesirable outcomes has just been increased.
Halligan recommends - as most non political analysts have been doing for months - a managed default for Greece as well as Portugal:
What is needed, urgently, is a clean, transparent Greek default - allowing this flailing semi-developed economy to leave the eurozone, re-establish a weaker drachma and regain its self-respect. Portugal should leave too, its membership of the same currency bloc as Germany is as absurd, and self-defeating, as that of Greece. There would be further market turmoil, yes, but a few more months of volatility, leading to an ultimately more stable outcome, is surely better than the current situation where the entire world is living in fear of a massive "euroquake".
The eurocrats, of course, lack the guts to trim back monetary union to a more manageable size. Too much face would be lost. So "euroquake" fears, once viewed as outlandish, are gaining pace. Despite Thursday's deal, and all the reassurances of a "durable solution", the Italian government on Friday paid 6.06pc for 10-year money, up from just 5.86pc a month ago and a euro-era high. Such borrowing costs are disastrous, given that Rome must roll-over €300bn of its €1,900bn debt in 2012 alone. A default by Italy, the eurozone's third-biggest economy, and the eighth-largest on earth, would make Lehman look like a picnic.
Halligan notes that even the bailout mechanism - the EFSF - might not have enough cash simply because the leverage required by the EFSF to bulk up would come from already cash strapped countries that might see bailouts as too risky to use taxpayer monies to buy the bonds.
It''s why Halligan believes this current deal will survive about two weeks.