Rob's 11th guest post on Saving the Euro.
The Full Monti
New Governments in Greece and Italy – Papendreou and Berlusconi dynasties over (well for the time being anyway as Berlusconi has hinted that he might throw his name in to the pot at the next elections…..)
The Dynamic Duo, Batman and Robin (sorry Merkel and Sarkozy) should be happy as the 2 perceived sticking points in their great plan for the Federal States of Europe have been removed and things should have taken a turn for the better.
However, the markets don't appear to have taken recent events very well.
Stock markets opened down again across the board this morning – 1% in France and Germany, but only about 0.3% in the UK with FTSE around the 5,500 level.
Currency wise – the Euro has lost ground against the US$ again at around 1.3550, and, as usual, pulled GBP down with it to £/$ 1.5875. However, against the Euro, GBP is still holding in at around 1.17 so it could be argued that this recent dip is a US$ led move rather than particular Euro weakness.
We really need to see Monti lead Italy from the front and come up with some real fundamental changes to get the debt issue under control – without an all party consensus and support, and some real tangible austerity plans Italy will struggle on as they did under Berlusconi with lots of parliamentary haggling and in-fighting, and the odd fist fight to liven up the day.
Greece will become a secondary issue, and if it becomes "business as usual" in the Italian government then the recent uncertainty surrounding the Euro zone will pale in to insignificance.
No matter how much money the IMF, ECB, EFSF etc. chuck at the problem, without fundamental changes in how these countries (and others in the "contagion" zone) manage their finances, it will ultimately fail as they will simply run out of resources – you cannot keep pouring money in to a bottomless pit.
The only countries with pools of cash to play with (China, Gulf oil states etc.) are all sitting on the side lines waiting to see what happens. They are not naïve, why buy Euro zone assets today, when you can possibly hoover them up at half the price in a "fire sale" in a few months time?
In the UK I confess to being a little confused at the Government's attitude towards the Euro zone.
I agree that we need a stable Euro zone as it accounts for approximately 50% of our exports, and Cameron keeps making statements to the press that they must sort out the problem quickly, but they are getting fed up with his constant badgering which will ultimately alienate them, irrespective of the outcome.
He also says that it is possibly a good time to "rethink and redraw" our relationship with Europe, yet when he had an opportunity to do just that, with a solid mandate from the people, he crushed the vote in Parliament, although it did expose the depth of feeling within his own party.
We need clarity from Europe (especially Greece and Italy) as to how they will get on top of the debt issue, and in the UK we need a clear lead on what our relationship with Europe will be going forward.
Without it the markets will wallow in limbo, and in the current climate it is much easier to sell than it is to buy.
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The author, Rob (not his real name), works in one of UK's largest charities.
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