Crashed by Adam Tooze

Author:Adam Tooze
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2018-08-06T16:00:00+00:00

Source: Bruegel, National Central Banks.

III

By May 2011, confidence was so shaky that a secret Eurogroup meeting was hurriedly convened in Luxembourg. Scheduled for Friday, May 6, it was meant to restore unity and coherence. Instead it turned into a PR disaster. When Schäuble insisted that they must start by discussing restructuring and PSI, Trichet stormed out. He wouldn’t countenance such talk. On the other hand, to proceed without him was impractical, as the only thing keeping the Greek banks alive was ECB support.36 No one fancied the idea of having to restructure them too. When Der Spiegel got wind of the meeting and markets in the United States began to react, the spokesman for Jean-Claude Juncker, the veteran prime minister of Luxembourg and Eurogroup chair, flatly denied that any meeting was taking place.37 Hours later the same spokesman was forced to admit that the leaders had indeed met. “There was a very good reason to deny that the meeting was taking place,” he told the assembled journalists. “We had Wall Street open at that point in time.” The euro was plunging. Lying was a matter of “self-preservation.” When the Wall Street Journal asked whether such deception might undermine the “market’s confidence in future euro-zone pronouncements,” Juncker’s spokesman retorted that the market already appeared to discount any comments by ECB president Trichet and France’s finance minister, Lagarde. Whatever they said on the subject of Greece’s debt, “nobody seems to believe it.” So what further harm could be done by a convenient lie? Juncker himself had come to similarly stark conclusions: “Monetary policy is a serious issue,” the Eurogroup chair told an audience in April. “We should discuss this in secret, in the Eurogroup. . . . If we indicate possible decisions, we are fueling speculations on the financial markets and we are throwing in misery mainly the people we are trying to safeguard from this. . . . I am for secret, dark debates. . . . I’m ready to be insulted as being insufficiently democratic, but I want to be serious. . . . When it becomes serious, you have to lie.”38 By May 2011 the effort to defend the indefensible, to uphold extend-and-pretend, had resulted in a complete breakdown of credible and coherent communication about the eurozone’s economic policy. Juncker was unusual only for feeling that he didn’t need to dress it up, which, as far as a tiny bourgeois tax haven like Luxembourg was concerned, might have been true. Projected onto a larger stage of the EU, the implications of Juncker’s “realism” were rather more disconcerting.

With Europe’s credibility draining away, what was needed was a “reset,” a clarifying intervention that would restore credibility and stop the crisis of confidence from widening. That is what Dominique Strauss-Kahn, as head of the IMF, seems to have had in mind when he scheduled meetings, first with Angela Merkel and then with the Eurogroup, for mid-May 2011. Strauss-Kahn “was going to push for a big firewall,” recalled one senior US official. “We were putting a considerable amount of expectation on the outcome of those meetings.

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