There were only two questions that mattered, going into the EU summit.
- Would leaders at the summit come up with any actions of their own to help end the immediate crisis?
- Falling short of this, would any of their actions give enough confidence to the European Central Bank to allow it step up its role and be a lender of last resort to all troubled eurozone countries, but especially to wobbly Italy? In other words, could the conservative ECB now give itself the greenlight to print euros and buy up bonds from the world’s third largest issuer?
The answer to the first question is very clear: NO. There are some rules agreed on forcing countries to have balanced budgets, but also some very sly features that could allow countries to flout these same rules with no fear of retribution. There was very little agreed in the way of promoting growth, which is really the only hope that the troubled countries have of escaping the debt trap. In fact, the austerity and budget measures actually work against growth. Dear Europe, when you find yourself in a hole the first thing is to stop digging.
The answer to the second question is, unfortunately, another question. “Who the heck knows?” Everyone was hopeful last week when ECB president Mario Draghi made some statements that were interpreted as signaling a quid pro quo: a fiscal compact from the EU leaders in exchange for substantial bond shopping on his part. However, on Thursday Draghi said that he was “kind of surprised” at this interpretation. Market participants did a collective facepalm when they heard this.
Very well, then. Time to consider plan B. What if. From Businessweek:
Contingency planning for an unraveling of the [euro] involves cutting investment, moving money to Germany, transferring headquarters to northern Europe from southern, and even going out of business, according to interviews with more than 20 executives.
Here’s a round-up of companies that have disclosed their what-if plans for a Eurozone breakup thus far. And for every one listed here there are who-knows-how-many-others that are unwilling to go on record about such a sensitive topic.
- British banks. According to Reuters the main banking regulator has told British banks to make plans for the event that there is a disorderly dissolution of the euro or an exit of some countries from the single currency.
- ABB, engineering company and one of the world’s largest conglomerates
- Novo Nordisk, the world’s biggest insulin manufacturer
- Wolters Kluwer, Europe’s largest tax and legal publisher
- Compass Group, the world’s biggest caterer
- Kingfisher plc, Europe’s largest home improvement retailer
- CRH plc, a maker of building supplies and Ireland’s biggest company.
- Grupo Gowex, a Spanish provider of Wi-Fi services
And companies are not the only ones. The Wall Street Journal made waves when it wrote that the Irish Central Bank was looking at its printing capacity in case it needs to start turning out pounds again. Witness how RTEreports the Central Bank’s studious completely-dodging-the-question-denial: “The Central Bank of Ireland has said it is not printing Irish punts and is only printing euro.”
I dare not predict what will happen next but it looks like lots of folks are planning for the worst.
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