[broken bar] HERE'S a message for Europe's leading banker Mario Draghi in the pithy acronym Winston Churchill used to drop into his wartime chats with US president Franklin D Roosevelt.
"KBO" -- which stands for Keep Buggering On -- is unfortunately one of the few options available as political leaders utterly fail to get to grips with a long-term fix to the current European turmoil. Yesterday's flat euro-summit -- the latest in a long line - - was a prime example.
In Frankfurt, "Super" Mario must be tearing his hair out. In a helter-skelter start at the European Central Bank late last year, he slashed interest rates twice and pumped more than EUR 1 trillion into Europe's creaking banking system to ward off an liquidity crisis and the very real threat of collapse among banks that were virtually shut out of dollar funding markets. His unprecedented dose of cheap threeyear loans bought some time, but it's been frittered away. Market bets against Europe's biggest banks and insurers have now reached the desperate pitch of last December, before the ECB began its largesse (see graph).
Spain and Italy's borrowing costs are up again as Germany pays absolutely nothing for two-year debt. The burden of the immediate policy response again rests with Draghi.
Realistically now, the best-case scenario for the Greek debacle is the ECB restarting its emergency bond buying programme -- which snapped up more than EUR 200 billion of struggling sovereign debt last summer -- and a further burst of cheap loans for Europe's banks.
If this happens alongside a concerted and ultimately successful campaign to terrify Greece into supporting proausterity parties next month, we might just get away with it.
For Greece, this means slow death rather than a sudden cataclysm because it is already slipping behind on the conditions of its second bailout, and austerity is wreaking havoc with its economy. This crisis will still come to a head at some point, but the can is kicked that bit further down the road.
At least this way -- the KBO way -- European leaders get more breathing space and a second chance to find a solution, which a Lehman-style sovereign collapse wouldn't afford.
Boosting the capital of Europe's banks, as rate-setter Adam Posen pointed out this week, is an urgent requirement. …