Is Merkozy's damp squib really a hand grenade?
The French and German leaders tried to buy some time but have made the situation even worse, writes Colm McCarthy
Published 21/08/2011 | 05:00
The collapse in share prices around the world has grabbed the headlines, but is not the most worrying development these last few weeks. The risk of a new credit crunch is far more serious. Banks have again become wary of lending to one another and this is reminiscent of the febrile atmosphere which gripped the markets in the summer of 2008. The fears this time are not about exposure to sub-prime US mortgage debt but to junk-rated European sovereign bonds.
From the beginning of the eurozone's problems in 2008 there has been a persistent tendency for policymakers to stick resolutely behind the pace of the game, presenting either grand schemes designed to prevent the next crisis or thoroughly inadequate responses to the current one. Tuesday's leg of the 'Euro Summit Tour' in Paris saw the French and German leaders -- fused elegantly as 'Merkozy' by headline writers -- produce what looks like another damp squib but could turn out to be a hand grenade.
The Merkozy meeting was a chance for the Franco-German leadership to offer a clear account of where the eurozone now stands and an outline, in a simple summit communique, of the steps needed to preserve a functioning single currency. They may have actually made things worse.