Merkel and Hollande stiffen their euro resolve

If you thought there was any possibility of the euro collapsing altogether, think again, because Merkel and Hollande have started trumpeting they'll 'do whatever it takes'.

by Michael Northcott
Last Updated: 19 Aug 2013

The situation in the eurozone has been festering away for as long as anyone can remember now, but the threat of the currency union disintegrating and the worldwide financial crash it would cause will now be averted. German chancellor Angela Merkel and French president Francois Hollande said they would ‘do everything’ to protect the currency, and urged all European institutions to ‘fulfil their obligation’. It seems Merkel no longer wants to keep her cards close to her chest. 

The announcement follows that of Mario Draghi, president of the European Central Bank (ECB), who said yesterday that the bank would also ‘do whatever it takes’ to protect the eurozone from collapsing. The pledge means the bank would take measures to prevent the horrendously high borrowing costs that are plaguing the governments of Spain, Italy and Greece. He said the bank sees the euro as an ‘irreversible’ currency, and in reference to the strength of the ECB, said: ‘Believe me, it will be enough.’ 

The smell of hubris in these statements is more potent than a Greek sewage outlet, but at least it has given markets a reason to rally. Yields on Spanish and Italian bonds came down almost immediately after Merkel and Hollande’s assurances were broadcast, and the value of the euro was also buoyed. This is good news, considering Spanish 10-year bond yields reached record highs of more than 7.5% earlier this week. 

Whether or not these words can be matched with deeds if everything goes pear-shaped remains to be seen. But Germany is very rich and the EU has been extorting billions from member states for decades, so we reckon there’s probably enough cash in the kitty to prevent an all-out disaster. It just depends on Merkel being a woman of her word…

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today