The Triumvirate

It was pleasing the notice the stark difference in the treatment offered to M. Monti from Mr. Sarkozi and Ms. Merkel, as opposed to how the two of them made Berlusconi a laughingstock, only a few weeks ago. In yesterday’s three nation reunion, the continent’s top three economies made a show of unity, even as not much substance was disclosed.

The bottom line continues to be that, having been burnt by Greece and Italy already, Frankfurt and Berlin will only capitulate on the issues of QE and/or Eurobonds, at the very last minute. We have two observations/analogies to make.

The first one is that the European and world leaders are keenly aware that this train is headed towards a big wall, and they must deviate it pretty quickly, and that there are few alternative routes and not much time before the sheer speed will make it difficult to call if it is not too late to make the change.

The second is that we read yesterday that Germany has bought a first class ticket on the Titanic. This is an apt comparison. Germany is betting that by delaying to the last possible minute the inevitable decisions, it will ensure that the profligate southern Europeans will execute on their promises this time rather than just doing lip service. The problem is that with regards to Italy at least, even with Monti at the helm, Germany doesn’t trust parliament to vote for his measures, given that Berlusconi can ‘switch Monti off at any time,’ as someone attributed to Berlusconi.

Basically, we probably have good pilots driving our Formula One, but the terrain is wet, the track is tricky, and visibility is decreasing…Let’s hope that they know what they are doing.