Eurogroup Chairman Jean-Claude Juncker's Grecian Bluff

Eurozone's Grecian charade continues this weekend with still more "moral support". One has to start wondering when the market is going to go "all in" in response to what is clearly nothing more than an obvious bluff by various European officials.

Please consider EU's Juncker warns against eurozone drift apart.

Eurogroup Chairman Jean-Claude Juncker warned on Saturday against a further drifting apart of euro zone economies in an interview with a German newspaper.

"We must take care that the divergences do not get wider still. A currency zone cannot exist in the long run if the differences in the current accounts of the economies get too big," he told the Sueddeutsche Zeitung, adding he did not believe the euro zone would fall apart.

The Greek government had to understand it was its job to bring its budget into order but if Athens did everything it could, Europeans would stand by in an act of solidarity. He declined to say, however, exactly how the EU could help Greece.

"I cannot today name an exact instrument... We have many instruments ready and will use them if necessary," he said.

Juncker also said he did not believe the EU's Stability and Growth Pact needed to be reformed to respond to a possible state bankruptcy.

"The basis of the Maastricht Treaty is that a state bankruptcy does not come into question. If we had thought a euro zone member could go bankrupt, we would have devised instruments to deal with that. This is not envisaged," Juncker said.

He did not think a clause allowing the euro zone to throw out a member would be a good idea.

"Because throwing (a state out) would have momentous, uncontrollable consequences. We must prevent a state from getting close to bankruptcy."

A Bluff With No Chips

Junker's statements are like making a bet with no chips on the table. It can't be done except in Political Fantasyland. By now, everyone knows Bazooka Theory Is A Proven Failure.

It's even more preposterous in this case given that Junker would not even say what was in his pocket. Is it a bazooka or a pea-shooter and a squirt-gun?

Someone who claims to have "many instruments" ought to be willing to name a couple of them. Given that he will not lay his weapons on the table, some of us are skeptical whether he has any weapons at all.

Lack Of Vision

I can't help but laugh at Juncker's statements "If we had thought a euro zone member could go bankrupt, we would have devised instruments to deal with that. This is not envisaged."

Junker says he has "many instruments" and in the next breath admits he devised no instruments.

Junker also says "The basis of the Maastricht Treaty is that a state bankruptcy does not come into question." Really!?

Junker is effectively saying "This can't happen because we did not think of it."

What hubris! Did central bankers envision a worldwide recession? Did the Fed in 1929 envision a great depression? Who envisioned a massive earthquake in Haiti?

Because the EU failed to account for the problems of member countries when it devised the Maastricht Treaty, dealing with the issues of bankruptcy became more likely, not less likely.

Strikers Will Force Greece and EU's Hand

The market and strikers in Greece may quickly force many of those EU chips on the table and some of them in the pot.

Please consider Civil servant strike in Greece shuts schools, grounds flights.

A strike by civil servants shut schools and grounded flights across Greece on Wednesday, as unions challenged cutbacks aimed at ending a government debt crisis that has shaken the entire European Union.

Air traffic controllers, customs and tax officials, hospital doctors and schoolteachers walked off the job for 24 hours to protest sweeping government spending cuts that will freeze salaries and new hiring, cut bonuses and stipends and increase the average retirement age by two years to 63.

"It's a war against workers and we will answer with war, with constant struggles until this policy is overturned," said Christos Katsiotis, a representative of a Communist Party-affiliated labor union.

The realistic response of the EU would be to kick Greece out of the union if Greece does not comply with the treaty. Yet that is an option Junker and EU officials refuse to admit even exists.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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