Richard North, 31/07/2012  

Hollande 394-xxi.jpeg

Mario Monti is to meet Hollande in Paris later today, and we are to get another of those showpiece pledges about saving the euro. Indeed, Monti is already ramping up the rhetoric, telling us that the famous tunnel "is beginning to show some light".

This, however, can only be the light of a train coming the other way, for no one in their right mind has a scintilla of doubt that the euro crisis is intensifying. And, as a measure of its intensity, we are told that France and Italy are planning a massive increase in the ESM, enabling the ECB to refinance without limit.

One can only assume that the two leaders (pictured above) have finally lost the plot, invoking a squawk of protest from Juergen Stark, former chief economist of the ECB, who sees a clear violation of European law.

This would mean, he says, that states would be financed indirectly by the European Central Bank, Stark, adding: "We are already stretching European law to its extremes, to say the least". And now the community is breaking the law, he says. All that is needed is a plaintiff.

That apart - as we keep saying - nothing can happen with the ESM until the Karlsruhe hands down its judgement in September, and the Germans are able to ratify the treaty, if at all. The Franco-Italian posturing therefore is typical of the fantasy politics which seem to be afflicting the "colleagues".

But it goes from the sublime to the ridiculous when the Luxembourg foreign minister Jean Asselborn takes it upon himself to warn German against "isolation in Europe".

So far from reality is the current game that one is lost for words. This can only be part of the continued effort to keep the lid on the markets, until everyone is back at work in September. Short-term, the markets are easily pleased, and seem to be going along with the fiction. But the reckoning cannot now be far away.


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