The predictable European Summit ritual

European summits have now acquired a boring degree of predictability, and the upcoming June 28-29 summit in Brussels will prove to be no exception. The countries of Europe’s south—which since Francois Hollande assumed the presidency now seems to include France—will implore Europe’s northern countries to support euro bonds and a European banking union as a solution to the European debt crisis.

Germany, Europe’s paymaster, along with its like-minded northern European partners, will again say no out of fear that such a course could severely damage its long-term creditworthiness. In the meantime, the euro crisis—now well into its third year—will grind on, raising the very real risk of an eventual unraveling of the euro.

The reason one must expect the ritual will continue at the next summit is that the potential cost of euro bonds and of a European banking union have become prohibitively expensive for Germany. Now that the European crisis has metastasized from the small countries of Greece, Ireland, and Portugal to larger countries such as Spain and Italy, the Germans are all too aware that guaranteeing those countries’ sovereign borrowings or underwriting their banking systems’ deposit insurance could irreparably damage Germany’s creditworthiness.

Read the full article at The American.

Desmond Lachman is a resident scholar at the American Enterprise Institute.

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About the Author

 

Desmond
Lachman
  • Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.
  • Phone: 202-862-5844
    Email: dlachman@aei.org
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    Name: Emma Bennett
    Phone: 202.862.5862
    Email: emma.bennett@aei.org

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