Rob's 14th guest post on 'Saving The Euro'
Another New Government.
What can I say?
Cameron basically came home with his tail between his legs after Merkel basically told him to get lost, and refused to consider any of his proposals.
Major German papers ran headlines ridiculing our Prime Minister and made reference to the fact that the UK would have to join the Euro whether we wanted to or not – sadly that was repeated in the UK by Michael Heseltine.
Seems to be a one man band running things in Europe at the moment and the conductor is named Merkel.
We now have a new government in another Southern European country – Spain – 3 changes in less than 2 weeks, but it is having very little effect upon the market, confidence is still weakening.
I mentioned a couple of weeks ago that this reminded me of the ERM crisis in the early 90's, and this morning's comments by Moodys about France will only add fuel to that fire.
Though Sarkozy has seemed to be Merkel's shadow over the last few months, he has gone very quiet over the last couple of weeks. France is not another Germany, they simply don't have the cash available to back anything they might want to do, all he can do is support Merkel verbally, make suggestions as to what might help France , but as the junior partner he can only accept what scraps he is thrown.
His argument for the ECB to become the lender of last resort and for it to hoover up Euro zone government bonds to stabilise the market (a suggestion also made by Cameron) was dismissed out of hand by Merkel – again making blanket decisions for the other countries in the 17 country group – I still cannot understand why all the other countries are so quiet.
France is definitely creeping in to the sights of the dreaded "market", and if it forces France's debt financing rates up to anything like the levels paid by the "PIIGS", be prepared for a bumpy ride.
Stock markets are down across the board by about 2% again – each day they open a little lower each time – FTSE trading around 5250.
Currency wise, I am still a little confused as to why the Euro has not been hammered – but that could simply be down to a lack of players – Euro/$ weakened a little and is hovering around 1.3450, dragging £/$ down with it as well to 1.5650. The interesting point to note is that GBP has lost ground against the Euro – it seemed quite comfortable at 1.17 but is now headed towards 1.16.
I am very surprised that other international players – USA, China etc. have been willing to sit back and let this sad story unfold.
The likes of Obama are constantly preaching to Europe to get its act in order, but all we have seen so far is uncertainty, wishy washy ideas, 3 governments turned over, stock markets falling daily, cost of debt financing rising and no clear plan to resolve the problem.
It is a complete mess……..I don't know how much more time the "market" will give Europe to sort itself out.
If the "market" gets the bit between its teeth and decides to really put the squeeze on the likes of Greece, Italy, Spain and now even possibly France, I wouldn't be surprised to see one of them go for pulling out of the Euro – would mirror the UK pulling out of the ERM as the "market" pressures were simply too much for the UK government to bear.
The only difference in this case is that the UK was, and still is, a sovereign country with its own currency – GBP.
There was never a plan "B" for those that joined the Euro to be able to revert back to their own sovereign currency – that is the tricky bit.
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The author, Rob (not his real name), works in one of UK's largest charities.
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