Guest Commentary: The Weekly Macro View - Give The Pre-EU-Summit Rally A Miss
The next in a steady string of EU summits is scheduled to take place on December 8th-9th where leaders are once again going to try and find a way out of this mess. Markets have a tendency of rallying ahead of these events in anticipation that something might actually get done and often end up being disappointed by the results. While the situation certainly continues to deteriorate in the euro region, we still don’t believe that EU leaders have the unity needed to make the sweeping changes needed to stop the rot.
To articulate our point a little clearer, we have been closely watching recent speeches by both French President Sarkozy and German Chancellor Merkel for insight to even mild changes of their stances. In recent remarks by the French president, he embarked upon an interesting telling of events and, what some commentators have termed, ‘Sarkonomics’. Sarkozy started off by saying that France was essentially a victim of external events, namely unregulated finance and globalised trade, and France can’t be blamed for the problems because she herself is in trouble. He deftly side stepped the dicey issue of why some neighbouring states like Germany and the Scandinavian bloc have fared somewhat better than other developed nations. Sarkozy continued by relating to nations that have already fallen to these external market forces (Spain, Portugal, Greece, Ireland and Italy) as a warning sign of what will happen to France if she does not take the necessary action. (No prizes for guessing Merkel sings from a different song sheet here).
Sarkozy goes on to talk about the European Union facing its darkest hour but impresses upon his audience the need for haste; “...there is urgency, the world will not wait for Europe. If Europe does not change fast enough, history will be written without her.” It is most likely that this sudden need for speed is being driven by France’s own AAA-rating being threatened as the market doubts the future of the euro, something Sarkozy suggests can only be tackled through solidarity and euro bonds (Sarkozy doesn’t mention euro bonds by name but the intimation is clear as day).
Turning to his German counterpart, Chancellor Merkel in a recent address at the Bundestag took a very different line to the French president at almost every turn. Where Sarkozy points at uncontrolled external forces as the source of the crisis, Merkel identifies fiscal rule breaking by nation states as the cause. When the French president warns that France could follow the same slippery slope as Greece, Portugal and others, Merkel’s comments are praiseworthy of the efforts made by troubled nations but makes no mention of any such troubles on Germany’s shores. And finally, where Sarkozy sees a cause for “urgency” the Chancellor says “There is no possibility for a quick fix...there are no easy or fast decisions. The debt crisis is a process. It will take years.”
While there are many more areas in which these two have disagreed in their recent speeches, our point has certainly been illustrated. Two of the region’s largest and most influential nations remain far apart from each other on multiple key issues. Divisiveness among key players makes it very unlikely that the necessary changes to the European Union’s treaties will be made and the ECB’s ‘bazooka’ will continue to lie dormant. It’s clear then that any pre-summit rally will be completely unjustified.
Written by Jonathan Granby, Analyst, GlobalTrader365.com
Jonathan Granby is an analyst for GlobalTrader365.com where he provides coverage of G10 FX.
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