Ashburton - Hopes fade as Germany continues to talk tough
“Market expectations for this coming Thursday’s ECB meeting are so low that some form of conciliatory action from Germany might help create a market bounce, but the recent track record of encouraging noises followed up with no explicit workable solution continue to mean that European policymaker credibility remains low.
“The market was disappointed by a lack of QE3 last week by the Fed. However, stimulatory monetary policy measures from the major central banks over the next few meetings now seem reasonably likely. The current market weakness lies more with growing disappointment in the political progress at solving the Eurozone crisis. Increasing German belligerence with respect to helping out its weaker European partners is clearly unhelpful. To get on top of the crisis, we need mechanisms to deal with countries’ excessive sovereign debt and under capitalised banks.
“Yet Germany continues to talk tough, and the hopes of political concessions from this week’s meeting are now fading. German plans about what to do with public debt above 60% of GDP and creating a banking union are circulating, but would be nearly impossible to implement in the short-term. Rather than come up with workable solutions, Germany appears to be happy to allow the status-quo to continue.
“Some commentators, including recent Ashburton conference speaker Anatole Kaletsky of GaveKal, argue that the rest of Europe can, and should, stand up to Germany and insist on treaty change that would enable “a banking union, followed by jointly issued Eurobonds and backed by ECB quantitative easing”. Others believe that the Italian PM, Mario Monti, could stand up to Germany, arguing “What has he got to lose anyway? His poll ratings have fallen, and he is also losing support within his coalition. Only by speaking truth to power can Mr Monti save his country, and the euro”.
“However, Francois Hollande would need to back Monti if he stands any chance of forcing a policy change. Hollande may feel that it is best that France is perceived to be part of the core with Germany, rather than part of the problematic Club Med. Hollande may also be emboldened by the performance in the polls by the Dutch Socialists which may mean we get a change of Government after the parliamentary elections in September.
“Greece’s representation at the Summit could further complicate matters. With the Prime Minister, Samaras, hospitalised and the finance minister having resigned, Greece will instead be represented by the President, Karolos Papoulias, and the previous Finance Minister, George Zanias.”
blog comments powered by