The coalition of the willing… Eurozone redux.

What interesting mood music we are being treated to from Europe. Though in truth what is Europe any more? It should be the European Union, but that body, nominally in charge as it may be is oddly quiet. It could be the ECB, but likewise. The 27 heads of government? Er…no… though there are two, or is it one, that counts. And so one reads that:

GERMAN FINANCE minister Wolfgang Schäuble has denied reports that Berlin and France will create a “coalition of the willing” inside the euro zone if EU members reject binding budgetary rules through treaty change.

Rather than convince the EU’s 27 member states or wait for the euro zone 17, Welt am Sonntag newspaper reported yesterday that Berlin and Paris are prepared to create a new “stability club” of eight to 10 members.

Note that this isn’t coming from the eurosceptic British press but from the German press. Does that lend it greater credibility? Perhaps not, but contemporary denials on matters economic in Europe seem much less valid than they might once have.

A German government spokesman declined to comment on the “stability club” proposals yesterday, saying Berlin remain committed to limited treaty change.

A Berlin official added that it was “not Berlin’s ambition” to see the euro zone split in two.

And it makes sense. Constitutional change is a very very dangerous path to take given the ramifications. As I noted at the weekend if it came to an existential In or Out referendum one might suppose that it would be an affirmative vote, but I doubt Enda Kenny would want to bet the park on it. And it might require quid pro quo’s that Germany in its current mood appears almost unable to conceive let alone actually offer.

I’m not a eurosceptic. Critical of the project? Why surely, and deeply and increasingly so. It’s not that I have any illusions as to its nature, but as with any human construct there are both positive and negative aspects, progressive and reactionary ones. That many of us, myself included, for far too long thought that the latter were outweighed by the former is without question a form of credulity, willful too. But there are realities, one of which is that the EU isn’t going anywhere, even – or perhaps particularly – if the eurozone melts into a tighter configuration. So that has to be faced up to, at least as I see it. But what is notable is how the liberal left, broadly speaking the pro-EU centre left, has been unwilling to critique the current events according to the framework they’ve always presented us with in terms of understanding and supporting the EU. The wresting of control and leadership by two states has been effectively ignored, the complete sidelining of EU institutions likewise, the palpable jettisoning of the spirit, and in some respects the letter of EU law likewise. Few voices have been raised to point out that what we have witnessed has been the negation of the stated goals and approaches of the EU.

And, revealingly, the obeisance to markets when the EU was meant to offer a bulwark against them has been all too evident. But if the EU isn’t going anywhere then what does it genuinely stand for in the wake of this? What vision does it articulate? Least worst alternative to every state for itself somehow doesn’t inspire.

Actually, seeing as we’re still thinking about Europe, interesting to see Moody’s warning shot across the bows of European governments…

Moody’s Investors Service warned today the rapid escalation of the euro zone sovereign and banking crisis threatens the credit standing of all European government bond ratings.

“While Moody’s central scenario remains that the euro area will be preserved without further widespread defaults, even this ‘positive’ scenario carries very negative rating implications in the interim period,” the agency said in a report.

And it seems to believe that worse must occur before the EU or whatever subset of governments get their act together:

The ratings agency also noted the political impetus to implement an effective resolution plan may only emerge after a series of shocks, which may lead to more countries losing access to market funding and requiring a support programme.

”This would very likely cause those countries’ ratings to be moved into speculative grade in view of the solvency tests that would likely be required and the burden-sharing that might be imposed if (as is likely) support were to be needed for a sustained period.”

Needless to say Moody’s has recommendations… oh yes.

Moody’s said the euro area is approaching a junction, leading to either closer integration or greater fragmentation.

The likelihood of even more negative scenarios has arisen in recent weeks, Moody’s noted, reflecting political uncertainties in Greece and Italy and a worsening of the region’s economic outlook, among other factors.

”The probability of multiple defaults by euro area countries is no longer negligible. In Moody’s view, the longer the liquidity crisis continues, the more rapidly the probability of defaults will continue to rise,” it said.


And this would mean the following:

Such defaults would increase the chances that one or more members of the bloc would leave the euro area.

”Moody’s believes that any multiple-exit scenario – in other words, a fragmentation of the euro – would have negative repercussions for the credit standing of all euro area and EU sovereigns.”

In the absence of major policy initiatives in the near future that stabilise credit market conditions, or markets stabilising for any other reason, “the point is likely to be reached where the overall architecture of Moody’s ratings within the euro area, and possibly elsewhere, within the EU, will need to be revisited.”

So, now we have Moody’s and noises off from the Germans both talking fairly openly about a contraction of the Eurozone. And again, are we left on the inside or the outside?