The Latest Eurozone Ploy Is to Attack Britain while Fitch Tells the Hard Truths

Credit rating agency Fitch announced on Friday that it thinks the Eurozone cannot produce a comprehensive solution to its debt crisis, that is, that a solution is beyond reach. Fitch then put several Eurozone economies, including France and Italy, on watch for potential downgrades.

It reaffirmed France's top-notch triple-A rating but said the outlook is now negative over a longer term. In response to the negative watch, the French Finance Minister lashed out at Great Britain, saying its credit rating deserves to be lowered before France’s. This, at least, is a comic response to the Eurozone fiscal crisis - play musical chairs and guess who will be the last man standing. It is hard to believe that the normally very logical French actually believe that rock-throwing at Britain will help them keep their Triple A rating, but then these are perilous and uncharted times. And, the fact that Britain managed to keep itself out of the Eurozone must grate hard on France, whose citizens approved the pact by the smallest of margins and are now undoubtedly wondering if they made a mistake.

Meanwhile, the new Italian prime minister took a side swipe at Germany in saying the Eurozone leadership should not to create divisions in Europe by imposing too strict austerity measures in too tight time frames. That, at least, is a constructive comment because much of the past month has seen the Eurozone debtor nations hit by increasing shrinkage in their economies (Italy 5.5% and Ireland 1.9%) at a time when the only way to save their countries from sovereign default is to grow their economies enough to pay for the bailout loan packages foisted on them by the Eurozone leadership.  

German Chancellor Merkel, under pressure from her revered German Bundesbank to force debt-saddled euro zone countries to reform and ‘save’ their way out of crisis with austerity measures, has led a push for automatic sanctions for deficit "sinners" in the Eurozone.

This has fed concerns that excessive belt-tightening in southern countries could send their economies into a negative spiral with no prospect of growing out of the crisis, while feeding resentment in the prosperous north.
Fitch said that following the EU summit a week ago it concluded that "a 'comprehensive solution' to the Eurozone crisis is technically and politically beyond reach.

"Of particular concern is the absence of a credible financial backstop. In Fitch's opinion this requires more active and explicit commitment from the European Central Bank to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States," Fitch said.

Fitch put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch.

Standard & Poor's, another rating agency, had already warned 15 of the currency bloc's 17 members they were close to a downgrade.

A first draft of a planned fiscal union treaty among Eurozone countries and countries wanting to join the Eurozone (I cannot explain this, except perhaps to say that lemmings love to drown themselves in groups), published on Friday, showed that countries could be taken to the European Court of Justice if they fail to meet agreed budget targets. Immediately, Hungary and the Czech Republic took exception to this control mechanism.
So, we see that the Eurozone is almost as divided and unwilling to compromise as are the Democrats in the US Senate and the Republicans in the US House of Representatives.

The difference today is that the Americans buried the hatchet long enough to adopt a budget continuing resolution to get the United States through to the end of the current fiscal year and also approved a military budget.

But, in the Eurozone, the only movement seemed to come in negative chunks of self-serving, even if true, statements meant to drive the proposed Eurozone solution to its financial crisis to its lowest common denominator, which would be to do nothing - except attack Great Britain for not being part of the horrible mess Europe has got itself into.

That is why the Fitch statement that that "a 'comprehensive solution' to the Eurozone crisis is technically and politically beyond reach…” was simply the most effective way to tell Europe that it is far from solving its problems and that the future looks bleak indeed, for both Europe and the Euro as a currency.