The Outcome Of The European Summit Hangs On Germany's Merkel

Wednesday, June 27, 2012 23:17
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The Outcome Of The European Summit Hangs On Germany's Merkel

Tags: European crisis | European zone | world economy

Hopes are that, during the upcoming European Summit June 28 and 29, German Chancellor Angela Merkel will facilitate agreement on the creation of a European banking union designed to spread the risk across a broader spectrum of nations to preserve the euro and offer hope to distressed Eurozone member countries.

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The sovereign debt crisis has become so deep that banks are afraid to run credible stress tests, fearing just how much aid ailing banks would need. Many distressed Eurozone countries have banks large enough to threaten the euro if they failed. The total would be twice the gross domestic product of the strongest Euro economy, Germany, and three times that of Spain and France.
 
Many feel that the only real solution is for Eurozone countries to sacrifice a bit of their autonomy to form a banking union that would spread the risk across a broader banking segment, enabling Europe to handle the failure of multiple major banking and financial entities.
 
Germany’s Merkel only wants a supervisory role, however, and is quite reticent to share in the risk because she feels that the real problem of fiscal responsibility will be overlooked in the effort to provide short-term relief.
 
But a banking union can only be effective if all members are willing to participate in both the risk sharing as well as greater collective power. So we watch and wait to see what happens during the European Summit over the next two days. It would appear that Germany's Merkel holds the keys to the outcome.

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