Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Has Merkel Just "Blinked" and Saved the Euro Project?

Politics / Eurozone Debt Crisis Jun 07, 2012 - 08:17 AM GMT

By: Christopher_Quigley

Politics
Best Financial Markets Analysis ArticleA picture tells a thousand words. The chart above shows just how grave the situation in Spain is. Europe is in crisis and the euro
is in danger of falling apart.




Things have become so serious that President Obama has intervened and has asked British Prime Minister David Cameron to
travel to Berlin today and put an ultimatum to Chancellor of Germany Angela Merkel: "act before it is too late".

It looks like following such pressure that she has finally blinked and altered her former "stone walling" policy. It looks like Spain
will be granted a bank bailout without giving up the type of sovereign authority demanded of Ireland and Portugal and Greece.

According to news reports:
1. " Brussels' officials are examining the possibility of paying bailout funds directly to the Spanish banking rescue fund rather than to the Spanish government. And Germany’s Angela Merkel is looking for a way to enable Spain’s reluctant premier Mariano Rajoy to access eurozone rescue funds while not having to impose new economic reforms."

2. "Unnamed German officials told Reuters that contingency plans were under way, with lawyers studying treaties, for ways to provide funding without a full-on programme."

3. "Derek Scally of the Irish Times reports that British Prime Minister David Cameron is expected to raise the issue with chancellor Angela Merkel when he travels to Berlin today. Mr. Cameron is expected to pass on to the German leader the central message of a phone call he had yesterday with US president Barack Obama on “an immediate plan for the solution of the crisis and restoration of market trust”.

This departure by Merkel, if it proves to be true, will be a game changer. Confirmation will be great news for world stock markets.

It looked like the Spanish banking system was on the verge of collapse. Spanish officials were refusing to request an IMF/EU bailout along the lines forced on Greece et al even though the bond market had effectively closed its doors to Madrid. The premier Mariano Rajoy was of the opinion that additional austerity that such a bailout would demand would cause political and social chaos throughout the Iberian Peninsula. With the bond market defunct Spain's only alternative would have been to print its own currency. This recourse would only have been possible if Spain left the euro. Such an unthinkable possibility motivated George Soros to state the following at the Festival of Economics at Trento Italy last week:

"It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along National lines could make an orderly breakup of the euro possible in a few years time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. ( It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target 2 by the end of the year (see note below), in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro - nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer payments. That would turns the European Union into something very different from what it was when it was a "fantastic object" that fired people's imaginations.

It would be a German empire with the periphery as the hinterland."

Today it looks like Angela Merkel has heeded Mr. Soros' advice and gone for the "least worst" option. Should she manage to convince her political backers to allow future bank bailouts without sovereign interference Spain will probably agree to stay within the euro. Such a mechanism would also suit Italy should the need arise. The only problem now is that the fund required to solve this problem will need to be in the magnitude of 2 - 3 trillion euros. This is why I think President Obama and David Cameron have decided to get directly involved. The game now is only open to high rollers and the stakes could not be higher. We certainly are living through historic days.


Author's Note: TARGET2 is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem. TARGET stands for Trans-European Automated Real-time Gross settlement Express Transfer system. TARGET2 is the second generation of TARGET.

Payment transactions are settled one by one on a continuous basis in central bank money with immediate finality. There is no upper or lower limit on the value of payments. TARGET2 mainly settles operations of monetary policy and money market operations.

TARGET2 has to be used for all payments involving the Eurosystem, as well as for the settlement of operations of all large-value net settlement systems and securities settlement systems handling the euro.

TARGET2 is operated on a single technical platform. The business relationships are established between the TARGET2 users and their National Central Bank. In terms of the value processed, TARGET2 is one of the largest payment systems in the world.

Source: European Central Bank website.

By Christopher M. Quigley

B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.

Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web   sites based in California, New York, London and Dublin.

Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.

© 2012 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in