Europe Throws a Hail Mary Pass

In a 1975 playoff game, the Dallas Cowboys were nearly out of time and facing elimination from the playoffs, down 14-10 against a very good Minnesota Vikings team. The Cowboys’ future Hall of Fame quarterback Roger Staubach had no very good options. He later said he dropped back to pass, closed his eyes and, as a good Catholic, said a Hail Mary and threw the ball as far as he could. Wide receiver Drew Pearson had to come back for the ball and, in a very controversial play, managed to catch the ball on his hip and stumble into the end zone. Angry Vikings fans threw trash onto the field, and one threw a whiskey bottle that knocked a referee out. After that play, all last-minute desperation passes became known as Hail Mary passes. (That was a very thrilling game to watch!)

And that’s what Europe did last weekend. They threw a Hail Mary pass in an attempt to avoid the loss of the eurozone. Jean-Claude Trichet blinked. Merkel capitulated. Today we consider what the consequences of this new European-styled TARP will be for Europe and the world. We do live in interesting times.

Europe Throws a Hail Mary Pass

On Thursday of last week, Jean-Claude Trichet, president of the European Central Bank, said three times "Non! Non! Non!" when asked in a press conference if the ECB would consider buying Greek bonds. His exclamation was accompanied by a forceful lecture on the need for eurozone countries to get their fiscal houses in order, some of which I quoted in last week's article, The Risk From Fiscal Imbalances and the Challenge for Central Banks. Trichet was remonstrating about the need for the ECB to remain independent, and was rather definite about it.

Then on Sunday he said, in effect, "Mais oui! Bring me your Greek bonds and we will buy them." What happened in just three days?

Basically, the leaders of Europe marched to the edge of the abyss, looked over, decided it was a long way down, and did an about-face. It was no small move, as they shoved almost $1 trillion onto the table in an "all-in" bet.

Bailing out Greece is very unpopular in Germany. So why did Chancellor Merkel agree to do so? This is the story that’s come out in the last few days, according to Bloomberg.
 

French President Nicolas Sarkozy threatened to pull out of the euro unless German Chancellor Angela Merkel agreed to back the European Union bailout plan at a summit last week in Brussels, El Pais newspaper said.

According to El Pais, which didn't say how it obtained the information, Spanish Prime Minister Jose Luis Rodriguez Zapatero said (in a private meeting of his Socialist politicians) that Sarkozy demanded “the commitment of everyone, that everyone should help Greece, everyone according to their means, or France would reconsider the situation of the euro.”

Sarkozy banged his fist on the table and threatened to quit the euro, which forced Merkel to cave in, Zapatero told the Spanish politicians, according to the El Pais account.

“If at this point, given how it's falling, Europe isn't capable of making a united response, then there is no point to the euro,” the newspaper quoted the French President as saying.

It wouldn't be the first time Sarkozy linked the fate of the euro to a willingness to support Greece. On March 7, before meeting Greek Prime Minister George Papandreou in Paris, Sarkozy said: “If we created the euro, we cannot let a country in the eurozone fall. Otherwise there was no point in creating the euro. We must support Greece because they are making an effort."