Merkel vs Hollande while Greece Suffers

While German Chancellor Merkel and the rest of the Eurozone leadership were busy meeting in Brussels on Wednesday and later telling the media that they were determined to keep Greece in the Eurozone and asking Greece to abide by its austerity commitments -- another European Union meeting had already wrapped up.
The Eurogroup Working Group on Monday met by teleconference as expert representatives of Eurozone finance ministers.
Reuters has reported that the EWG has told member nations of the Eurozone to prepare contingency plans specific to each country to cover the possible consequences of a Greek departure from the Eurozone.
This dichotomy puts into sharp focus the political disarray in the European Union and the Eurozone over the Greek question.
While top policymakers insist that they will make it possible for Greece to stay in the Eurozone, financial managers are planning for a Greek exit.
The German State Bank (the Bundesbank) wrote in its most recent monthly report that the situation in Greece is "extremely worrying" and that the parliamentary stalemate and its creation of uncertainty over the implementation of the austerity package is making it difficult to continue to provide financial aid to Greece. Greek governmental sources are meanwhile saying that if no further immediate funds are provided, Greece will run out of funds in two months.
Add to the uncertainties the fact that former French President Sarkozy always met with German Chancellor Merkel before major meetings, but now that the French President is François Hollande, he chose to invite the Spanish Prime Minister to go to Paris and meet with him, instead. If Merkel and Hollande cannot continue the Franco-German tandem in the Eurozone, things could unravel into policy rifts and in-fighting in quick order.
Spain continues to insist that it will not ask for European aid for its fiscal and banking crisis, but every day European media report that Spanish requirements for its badly under-capitalized banks are more than it can supply internally from Spanish government funds.
All of Europe fears a Spanish collapse because there may not be sufficient funds available in the EU to cover Spain’s needs and protect it from default and a subsequent abandonment of the Euro as its currency.
Perhaps Hollande was trying to bolster Spain’s courage to deal with its problem, but without Germany, France would be unable to help Spain alone.
And, there were no decisions coming out of the Wednesday Eurozone leadership meeting. The next meeting was scheduled for June, and several agencies were asked to prepare plans for a pan-Eurozone fund to cover problems such as Spain’s through Eurobonds or other arrangements.
Chancellor Merkel is still adamantly opposed to Eurobonds, which would be issued by the European Central Bank as a joint bond backed by every Eurozone country. This would result in lower interest rates for Greece and other countries having trouble borrowing at low interest rates -- but it could raise Germany’s cost of borrowing by raising interest rates to a Eurozone “average”. Hollande wants to set up a Eurobond system.
Merkel is not ready to abandon Germany’s prime position as a low cost borrower to bail out countries like Greece, which Germany considers to be at fault in mis-managing their fiscal affairs.
And the beat goes on…