Bad News from Europe

It seems like every week the European Central Bank does something to quell fears of the Euro's demise. For a few days it works, and then it doesn't.

From today's Der Spiegel, in an editorial titled, A Continent Stares into the Abyss:

Investors have lost confidence in the euro-zone countries and in their ability to rescue the common currency. Not even the recent changes of government in Italy, Greece and Spain have been enough to persuade them otherwise.

There is a growing sense of fear, both in the financial markets and in government offices. Even serious bankers who exude confidence in public admit privately that the monetary union could soon fall apart.

The previous bailout attempts have been worthless, they say, noting that Europe must finally reach for the only weapon whose firepower is endless, the European Central Bank. The ECB must finance the debtor nations, even if its own constitution bars it from doing so. The central bank has enough money, and it can also print money if necessary.

Most European leaders share this realization by now -- all except Merkel. She remains resistant, concerned about the central bank's independence and monetary stability. She is also staunchly opposed to all attempts to pool the debts of euro nations through jointly issued debt known as euro bonds.

The German chancellor is increasingly isolated. At home, she must defend any concessions to save the euro against her coalition partners, the business-friendly Free Democratic Party and the conservative Christian Social Union (the Bavarian sister party to Merkel's Christian Democratic Union). She must convince members of parliament from her own party and abide by the rules set by Germany's Constitutional Court in its far-reaching decisions on the euro crisis. The FDP is creating alarm by polling its members on the party's position on the crisis. In other countries, Merkel is seen as a stubborn defender of German interests who hasn't recognized how serious the situation is -- and is therefore jeopardizing the entire monetary union.