Interesting how Europe feels its fate is in the hands of the US.
The Euro was supposed to change all that.
Yes, the national governments know they are constrained fiscally by their self imposed 3% deficit limits. And they also suspect that they are further limited by market forces that may decide not to buy the national government securities and cut off their ability to borrow to spend. The national governments are in that respect similar to the US states which are currently pro-cyclically cutting spending due to funding constraints due to lack of income.
Unlike the US and the UK, in the Eurozone the national governments are providing the deposit insurance for their banks.
It can all come apart very quickly.
They can blame the US, but the fault lies with their failure to be able to sustain domestic demand, which they built into the treaty 10 years or so ago.
Good chance market forces will ultimately force modifications to the treaty.
My highlights in yellow below:
Trichet Says U.S. Must Pass Plan to Rescue `Global Finance’
by Andreas Scholz and Gabi Thesing
Oct. 1 (Bloomberg) European Central Bank President Jean-Claude Trichet said U.S. lawmakers must pass a $700 billion rescue package for banks to shore up confidence in the global financial system.
“It has to go, for the sake of the U.S. and for the sake of global finance,” Trichet said in an interview in Frankfurt with Bloomberg Television late yesterday. “I am confident, but of course it is the decision of the U.S. Congress.”
President George W. Bush and Senate leaders yesterday vowed to revive a plan aimed at buying distressed assets from banks that was rejected by Congress a day earlier. The vote roiled markets already struggling to cope with the collapse of Lehman Brothers Holdings Inc. European governments have helped rescue at least five banks since Sept. 28, with Trichet taking part in talks to save Belgium’s Fortis over the weekend.
Trichet said a pan-European approach to the banking crisis was unlikely, saying “we are not a fully-fledged federation with a federal budget.”
“Each country has to mobilize its own efforts,” said Trichet. “But of course there is a European spirit and that is the spirit of the single market.”
Trichet declined to answer questions about ECB monetary policy before tomorrow’s interest-rate decision. All 58 economists surveyed by Bloomberg News expect the central bank to
keep its benchmark rate at 4.25 percent.
European leaders are trying to better coordinate their response to the financial crisis. Luxembourg Finance Minister Jean-Claude Juncker said yesterday he expects to meet with Trichet and French President Nicolas Sarkozy on Oct. 4 to discuss “a more systematic approach.”
Trichet’s ECB has so far chosen not to follow the Federal Reserve in slashing interest rates since credit markets seized up 13 months ago, injecting cash into their markets instead, while keeping monetary policy focused on inflation.
“What’s needed is for us to continue to tell our fellow citizens that we will ensure price stability,” Trichet said in an interview broadcast yesterday on the France 2 television channel.
Belgium, the Netherlands and Luxembourg on Sept. 28 agreed to inject 11.2 billion euros ($16 billion) into Fortis, the largest Belgian financial-services company.
Governments and other authorities have also taken steps to protect the U.K.’s Bradford & Bingley Plc, Brussels and Paris-based Dexia SA, Iceland’s Glitnir Bank hf and Germany’s Hypo Real Estate Holding AG. Ireland yesterday guaranteed the deposits and borrowings of six lenders.