While I would like to stop writing about Europe,
unfortunately it doesn’t appear that I can.
I gave my most recent breakdown here,
here,
and here. Since then, Spain announced a bank bailout
and Greece had new elections. Here is
what has happened since my last blog:
Spain
– “Euro zone finance ministers
agreed… to lend Spain up to 100 billion euros ($125 billion)”
Greece
– “Greece’s two traditional political
rivals are in a race to forge a coalition as the state’s cash
dwindles, bank deposits flee and Europe demands renewed austerity
pledges before releasing more emergency aid… New Democracy won 129 seats
in the 300-seat parliament, according to Interior Ministry projections with 99
percent of the vote counted. Pasok, which has alternated in power with New
Democracy over the past four decades, won 33 seats, enough for the two of them
to forge a coalition that backs the creditors’ austerity demands.”
So what do these two events mean? It appears not a whole lot. Markets were unmoved by either. The Spanish bailout at first created some
optimism but that quickly dwindled. Why?
I can’t answer with certainly, but it would seem both of
these are stop gap measures that do nothing to address the major concern of the
Euro – disconnected monetary and political/fiscal policy (via Pragmatic
Capitalist, Goldman
Sachs). So where is the game
changer?
There is a lot of noise, so it’s difficult to tell when
something substantial (like our TARP program) will change the dynamic; however,
one thing is very clear: Merkel will be the key. Whenever Germany starts talking and acting on
the inevitable wholesale change that must develop is when there will be some
resolution.
Update: I wrote this a few weeks ago, but since
then there
has been a relatively big (well bigger) development:
“Euro-area leaders asked for proposals this year to unify
banking supervision and soup up the ECB’s powers. They referred to a clause in
the EU treaty that allows them to give the ECB prudential oversight of banks
and other non-insurance financial companies.
The move paves the way for the European Commission, the EU’s
regulatory arm, to augment its proposals on deposit insurance, capital
requirements and how to handle failing banks…
Once Europe establishes
a single banking supervisor, leaders said they may allow cash-strapped lenders to be recapitalized
directly instead of through their home governments. ”
