It’s the End of the EU as We Know It

France and Germany ready to pare down the European Union… From Bloomberg:

“We want it to be impossible for the deregulation that led to the euro zone’s current situation to recurr any case, we want a new treaty,” Sarkozy said in Paris. “Our preference is for a treaty of 27 but we’re perfectly ready to have a treaty of 17.”

Who will make the cut and who won’t? Almost surely Greece won’t be in the group of 17, while Italy more than likely will. It’s too big an economy to leave out, and it has a lot of connections to energy-rich nations (read, Libya).

The Euro Should Have Dissolved Long Ago

From Justice Litle at Inside Investing Daily:

Will Europe’s Democracy Problem Bring Down the Euro?

With Greece threatening to torpedo the latest rescue deal, Europe’s real issue is democracy.

“They must be crazy… this is no way to run a country.”
– Senior executive at a large Greek firm

For stock market bulls, the eurozone fix didn’t have to be long term. It just had to hold through Christmas (or at least Thanksgiving). The agreement to write down 50% of Greek debt seemed to accomplish that.

But then a funny thing happened: Greece threw a monkey wrench into the works.

In a surprise move this week, Greek Prime Minister George Papandreou called for a referendum (popular vote) on whether to accept the eurozone bailout, stunning France and Germany. The Greek government then revolted against Mr. Papandreou, calling for a no-confidence vote.

The net result: Total chaos. Will the rescue deal go through? Will the Greek government collapse? Will Greece be forced to exit the eurozone?

Greece on the Brink

Big news out of Greece…

The government is scrapping the idea of a referendum, and Europe is considering letting Greece leave the Eurozone in order to save the currency.

From Reuters:

Beleaguered Prime Minister George Papandreou said after an emergency meeting of his Socialist cabinet that his call this week for a referendum, which sparked panic on global financial markets, “was never a purpose in itself,” and he would be happy if the vote were not held.

Papandreou said he had agreed to talks with the center-right opposition on a transitional government to implement a new EU/IMF bailout program. Early elections would follow.

The article also reports, “France’s Europe minister, Jean Leonetti, said bluntly the euro could survive without Greece. ‘Greece is something we can get over, something we can live without,’ he told RTL radio in an interview.”

Could Greek Democracy Destroy Europe?

With yet another bailout deal on the table for Greece, the markets were off to the races…

The Dynamic Duo of Sarkozy and Merkel finally pushed through a viable option to pull Greece back from the brink of default. In one of the most surprising twists of the European debt crisis, the deal convinced private bond holders to accept 50% losses on the Greek bonds they were holding.

Greece would get $11 billion right away to help keep the government running, and Europe would beef up its emergency fund to $1.4 trillion.

But now, all the hard work and compromise could be in jeopardy, all because of democracy.

It’s ironic… The mother of modern democracy could destroy herself, and the rest of the European Union if she falls, by calling for a referendum on the debt deal.

50% Writedown for Greece

An agreement has finally been reached on Greece. The debt debacle has tossed markets up and down, like a middle-aged housewife’s emotions following the storyline of a soap opera.

Not to trivialize the crisis… Europe was inching closer and closer to the really tough decisions – to let Greece go belly up (and take Spain, Italy, and Portugal with it), or let the Euro go, and risk huge monetary problems transitioning back to individual currencies.

So what’s the deal? How much debt are insurers going to have to eat?

50%.

From Bloomberg:

European leaders cajoled bondholders into accepting 50 percent writedowns on Greek debt and boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis-fighting package intended to shield the euro area.

The markets like this news… even in Europe. France’s CAC 40 index was up 5.23% today, with Germany’s DAX up 4.99%. Great Britain joined the bunch with its FTSE 100 index up 2.78%.