Euro

It is a strange world. Even the most ardent defenders of the European Central Bank’s interest rate cut last week do not claim it will have any effect. All they say is that it underlines ECB President Mario Draghi’s commitment to save the euro “whatever it takes”. It was a psychological signal to markets rather than a meaningful change of policy, so they argue.

As the sovereign debt crisis lingers, we should pay more attention to the complex and obscure issues facing Europe’s banking system. It will be one of the main battlegrounds of the euro crisis for the coming year.

At a time when many observers were expecting the next steps in the euro crisis such as the establishment of a ‘banking union’ and the next packages for Greece, Cyprus and Portugal, the political situation has become more complicated.

Most followers of the euro crisis agree that the German elections, to be held on September 22, will be a watershed moment. Everything that had been put on hold in the crisis will finally be allowed to happen once Angela Merkel has been returned to power.

By announcing the next Greek package before the election, Schäuble is manoeuvring Germany into his much preferred position of actively supporting closer European integration.

The best one can say about the euro crisis at present is that it is on hold, contained by the ECB’s promises to defend the euro and some stop-gap measures to keep financial institutions and countries solvent until the German elections.

As I discovered playing Monopoly, there is no point dragging out a game artificially. Apart from that, my parents got sick and tired of having to play on just in order to keep my strange business model going for no real purpose. Perhaps the Greeks and the Spaniards should also tell the Germans that the game is up?

It could be quite a rude awakening after the September 22 election. An unsuspecting German public will quickly find out the real state of the euro, how much saving it will cost and what share of banking losses Germany’s savers and taxpayers will have to take in the euro periphery.