Sinking ship… Airplane crashing…
Looks like the EU is in a sea of problems, is there good land in sight to dock????
The only real market mover last week was speculation about the EU summit.
In last week’s market review, we noted the things the EU summit must at least make serious progress towards accomplishing, in order to calm markets enough to produce more than a short-term rally.
We were right to be concerned as the summit failed on every item.
1. It failed to make concrete steps towards centralized control of budgets and spending. The need for centralized control is in order to convince funding countries that they would be repaid in the end. The summit’s conclusions did not indicate why other enforcement mechanisms would succeed where prior EU treaties failed.
2. There were no commitments providing adequate funding. There is no explanation on how and where that funding will come about. There is no mentioning of whether Germany (and other more disciplined nations) will accept more money printing needed for bailouts, that will not involve piling on more debt.
3. There was no convincing evidence that EU members are ready to cede the sovereignty implied by centralized banking and budgeting.
4. There was no clarification on how all member states will be able to agree on the myriad of details in a timely manner and keep them solvent in the interim period.
5. It failed to provide a rescue plan that did not involve adding more debt to nations and banks that already cannot repay what they owe. Adding to the above, the summit repeated the mistakes of all prior EU rescues.
- The statement issue was vague and lacking most important details. What we got is just another set of plans to make plans.
- It was another underfunded piecemeal solution to stave off a near term crisis in Spain, perhaps Italy, at a time when markets won’t calm until they know there won’t be yet another nation next week under speculative attack and in need of yet another bailout. Currently, the EU bailout funds may not even be enough to keep Spain afloat, leaving Italy and others who may need help vulnerable to speculative attack.
- Burying debtors deeper in debt: As we detail below, all the purported accomplishments of the EU Summit involve use of more debt for banks that are already struggling with solvency.
This is all for now, hope for better days in the EU, that can bring better and happier Forex Markets…