We seem to be moving out of the eye of the European hurricane, as the winds are starting to blow again and people are taking cover. Spain and Greece made the front pages of the papers: the Wall Street Journal (WSJ) has “Bottles Fly as Spain’s Confidence Shatters,” accompanied by a photo of a bottle shattering on a building right by an older woman’s head as she takes cover; the Financial Times (FT) has “Spain’s premier fights turmoil,” accompanied by a picture of what looks like a masked riot policeman assaulting a member of the Spanish parliament; and the New York Times (NYT) has “New Protests Over Austerity Plans in Greece,” with a photo of a masked riot policeman running away from the remains of a Molotov cocktail. All three papers also have follow-up articles on both the Spanish and Greek protests to provide more context. Although the photos are quite scary, this is not just a photo op—it goes much deeper.
This is what it looks like when all the choices are bad ones. Everyone is looking for a solution that doesn’t require any sacrifice. The Catalonians are convinced they are paying too much, so they want to separate, which, of course, would make the problems worse for everyone, including themselves. “Spain Resists Homage to Catalonia” (WSJ, p. C12), “Spanish Ire Symbolized by a Carrot” (NYT, p. B1), and “Financial crisis stokes fires of Spanish identity” (FT, p. 4) all center on exactly this issue. What is the relevant governmental unit in Europe? At what level should different communities hang together and sacrifice for the common good? Without solving this fundamental issue, can any other issue be solved?
Not surprisingly, markets got knocked. The boost from the European Central Bank (ECB) announcement and German court ruling is pretty much gone as markets realize that, in fact, the problems have not been solved, even though a useful tool to help solve them is now available. “Spanish Scare Roils Europe Markets” on page A10 of the WSJ, “Markets Falter in Europe Amid Protests on Austerity” from page A4 of the NYT and another story on page B5, and “Return of Eurozone nerves knocks equities” on page 28 of the FT all point to markets getting much more realistic.
Although the populations’ inability to accept what needs to be done is the most visible, it is certainly not the only problem. The other major problem right now is the pending plan for the ECB to regulate all the continent’s banks. For a variety of reasons—almost all of which are political—this seemingly uncontroversial measure is very much disputed and is affecting not only the plans to rescue troubled banks, but also the internal structure of the eurozone itself. “Europe Tries to Ease Concerns Over Rescue Plans for Banks” (NYT, p. B2) and “Madrid faces test over bank review” (FT, p. 4) highlight some of the primary pain points right now, but this is an issue that goes much deeper. We will be hearing more about this, as well as about what Spain and Greece are willing—and able—to do.