German Lawmakers Approve Euro Rescue Deal
LYNN NEARY, Host:
NPR's business news starts with Germany saying yes to a bailout.
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NEARY: So Phillip, what is the market reaction to this German vote?
PHILLIP COGGAN: Well, rather disappointing. I think people might have been hoping for a rebound in stock markets. They have kept falling. The euro was up a bit earlier. It's lost pretty much all of its gains. I think it's because this is a temporary expedient to try and deal with the crisis, but it doesn't deal with the underlying problems, which are still that the deficits of some eurozone countries are just too big. And secondly, the political reaction it's caused with Germany, in particular, lashing out against the markets and speculators has worried investors about the future direction of government policies.
NEARY: Are you surprised by this reaction? I had the impression that people were anticipating that this was really going to have a positive effect. Are you at all surprised to see what...
COGGAN: Well, it's a classic case of buy when the barbarians are at the gate, sell when the trumpets sound the retreat. It's one of those times when, if people are anticipating a reaction to a market move, then often the markets do something completely different. So maybe investors were positioned for a German - pass - Germany passing the legislation, and once it happened, they moved on to some other issue. And perhaps they're going to worry about what's going to happen on Wall Street. So there are several factors going in at the moment: worries about the global economy, worries about government regulation on both sides of the Atlantic, worries about the fiscal position of many governments around the world, and they're all interacting.
NEARY: So where does that leave the European Union and the euro? Where does that leave the economy of Europe right now?
COGGAN: It leaves it facing a long period of probable austerity. Already, we're seeing countries - Greece, Spain, Ireland, Portugal, Britain - all pledging to cut their deficits - and Germany, too. So if everybody is cutting spending, raising taxes, then it's very difficult for the economy to grow. And, of course, at times when the economy isn't growing, that means that politicians become unpopular and they start to pass through measure which the markets don't like. So you get into this cycle, potentially, of bad news following one item after another.
NEARY: Let me ask you about a more sort of ineffable a problem here, and that is that it seems as though there's now a mistrust between countries with a stronger economy like Germany, and those with weaker economies like Greece. How does the European Union hold together in the future, given that level of mistrust that's there now?
COGGAN: You'd have to change all your coins, and all your debts would still be in euros. So it wouldn't deal with the underlying problem. But it may well be that this leads to changes in the relationships between governments. And it is a question for democracy. It's an irony, in Athens, the cradle of democracy, that Greek economic and social policies are effectively being dictated to them by outsiders, whether in Frankfurt or via the IMF in Washington.
NEARY: Philip Coggan is a columnist and capital markets editor for the Economist magazine in London. Thanks so much, Philip.
COGGAN: Thank you.
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