SUMMARY Gerry Adams, Martine Le Pen, and a Greek colonel. Is this Trichet’s destiny? Political risk is rising and dangerous.
European banks can cope with defaults by Greece, Ireland and Portugal, so say a raft of analysts that have run the numbers. So why not just let them default? The banks would be punished (in a commercial sense) for making ill advised investments; these countries would have the opportunity to begin rebuilding, and huge uncertainty would be removed. Is that not the route to go, as soon as possible?
Not according to the ECB (European Central Bank) who are driving events. Firstly they are clearly not prepared to allow French and German banks (the biggest holders of Greek debt) to take a hit – their actions, hectoring Greek MPs to vote in favour of the recent austerity plan, made that clear. It is also possible they believe that, if they can push the problem of default further into the future, in a Micawberish fashion, something will turn up – perhaps enough growth to increase the tax take, to enable debt to be paid off. This is pure fantasy. Last but not least, there is considerable commitment amongst the political classes, particularly in France, to the euro experiment. And allowing default of any kind would be a slap in the face, and hint at failure.
Time is not on the side of the ECB. The longer the matter of bankrupt peripheral countries is left unresolved, the greater the risk of a worse crisis. Politics could be the key trigger, and the inability to plug this risk into an excel spreadsheet means it can turn markets on their heads in an instant.
The thin green line of Irish voters has not yet broken, and the government remains pro-European for now. But that might not last. Sinn Fein will benefit from increased disquiet.
Throughout Europe, mainstream parties in power are already being routed. In Spain the ruling Socialist Party was crushed in regional elections, and the former Communist Party saw a significant rise in support. Revolting Greek voters and taxpayers are on our TV screens daily. In Germany not only is the party of Angela Merkel being badly mauled in local elections, but according to one Der Spiegel columnist, an alarming number of Germans are falling victim to right wing populism.
In France, the daughter of Jean-Marie Le Pen, Martine Le Pen, is now not only leader of the National Front, but also ahead of Nicolas Sarkozy in the polls for next year’s Presidential elections.
Unless Trichet soon acknowledges and deals with what everyone knows to be the truth, his destiny might be to deal with Gerry Adams, Martine Le Pen and a Greek (or Portuguese) Colonel.