Euro crisis: Did Merkel blink?
On the eve of the June summit of European leaders the noted Keynesian economist, Paul Krugman, argued that one of two impossible things would happen over the summer. Either the euro would collapse, which was impossible, or Germany would offer an absolute guarantee of all European debt, which was impossible.
The reason for these impossibilities is the class struggle which broke out in Europe following the credit crunch. The major powers argued that the borrowers on the periphery would pay, not the core banks in France and Germany who advanced the loans. However, as the crisis unfolded, the threat to the central powers increased. Firstly it became obvious that Greece had been pushed into partial default. If there was a widespread default this would lead to crisis for the major European banks. On the other hand the levels of debt in Italian, Spanish and French banks threatened to lead to overall collapse if their debts were not guaranteed.
The summit, it is claimed, resolved the contradiction. Angela Merkel blinked first. Spain and Italy got the right to ask for money from the EFSF to recapitalise their banks and support their government bonds without having to enter a Troika programme of austerity that has already been imposed on Greece, Portugal and Ireland. Loans could be made directly to banks rather than to states, resolving the issue of sovereign debt.
In fact, as the July Spanish budget demonstrated, the Troika is still in power and the summit makes absolutely no difference to the levels of grinding austerity that European workers will face - a fact underlined by the summit declaration that they would move towards a European budget dictated by the banks. Nor has Germany issued any guarantee - the new arrangement is not supported by any new funds.
Yet again the can has been kicked down the road. There has been a hint that German banking reserves will be committed, but the price of squaring the circle, of resolving the two impossibilities, will be a European dictatorship of capital.