These are all signs that the "all for one, one for all" big bail out binge in the EZ is approaching an end game. According to other Reuters News reports Finland and Spain have agreed on conditions for collateral, that however was at the centre of the firestorm a year or so ago when the Greek bailout was agreed and Finland demanded collateral. As soon as that was agreed the Netherlands said "Me too" followed by the Slovak Republic and Slovenia. Complete chaos took over the negotiations for about 6 weeks until it was decided no one was getting any collateral.
ECB's Nowotny voiced his thoughts clearly & concisely today "Mustn't allow UK to block European banking supervisor"; No solution on Eurobonds without Germany's support; Only consider giving Greece more time if it fulfills promises; protectionism in EU growing as crisis persists; leave deposit insurance scheme at national level for now." (DJN reporting on interview with Austrian newspaper) These comments are troubling, the UK is not going to back down on its position and has pushed back against an EU bank transaction tax; the UK is becoming marginalized and the UK dropping out of the EU would be a much bigger deal than Greece dropping out of the EZ.
Nowotny's references to protectionism growing is equally as worrying, that was how the Great recession saw global trade go into its death throes relieved only by World War II. Germany is tired of paying for others' mistakes, Bavaria is tired of paying for other states' mistakes. The Greeks want relief and want to have the austerity plan relaxed, Ireland says that if other states get special deals, they will too. Draghi says the issue of "senior debt burden sharing evolving" and any changes would be reflected in Ireland's adjustment program." That comment prompted the Irish response but still leaves the awkward situation of Spanish banks selling preferred debt to retail clients instead of deposits. As Harvey Keitel's character in "National Treasure" said "somebody my friend is going to jail".
I.E. someone has to pay the piper and at this juncture there are no volunteers and the EZ debt solution has been shifted back until September when Germany's courts rule on the validity of the ESM after which they get to consider Bavaria's request to withdraw from the state transfer system. This brings us back to the infamous target 2 balances by which the peripheral countries of the ECB are highly indebted to Germany via the ECB's Target 2 internal balances system. The arguments have raged back and forth about whether these are real or imagined debts but one thing is for sure, Germany's on the short end of the stick and Bavarian politicians know that. Could you imagine the uproar if Massachusetts, Alaska or one of the other surplus states filed to secede from the federal system? These are all signs that politicians in Europe sense their citizens are nearing their limit for ineffective governance - at the same time there's no solution in sight to give investors confidence to hold onto peripheral EZ debt - something has to give, the writing's on the wall.