Amid the deepening crisis, European commission is in denial

by Larry Elliott

Guardian
May 30, 2012

With Spanish bond yields heading rapidly towards 7%, the Greek economy on the point of meltdown and the future of the single currency increasingly in question, the timing could hardly have been better for Brussels to publish its report cards on the 27 members of the European Union. This was the perfect moment for the European commission to take stock, weigh up the policy options and announce a plan to deal with the unfolding crisis.

The documents reflect the gloomy mood. There is a recognition that monetary union is going through its most troubled period since its creation. There is an acknowledgement - of sorts - that current policies are not working. And there are suggestions, born of desperation, for how Europe should respond: with common bonds, a banking union and the direct injection of funds into shaky banks from its permanent bail-out fund.

This was enough to give the financial markets a sugar rush as dealers took comfort from the fact that Brussels was perhaps a bit less clueless than it has appeared to be for the past few months. As a strategy for resolving the crisis, however, it will prove to be another dud. For one thing, all the big ideas have been floated before and all have been met with a resounding "nein" from Angela Merkel.

More