Europe's Crisis; Out Of Control

They have been meeting almost daily since the crisis, at technical level, at the Ecofin, and several times even at the top level. And yet the German top leaders forget to mention to their European friends that they are planning an important headline grabbing regulatory move. Now things are really getting out of control.

“I was young, I was foolish, I was angry, I was vain, I was charming, I was lucky, Tell me how have I changed.  Now I’m out, Oh out of control.”

The Rolling Stones

The French are outraged. Christine Lagarde not only criticized the German decision, saying that a short-sale ban kills market liquidity, and added that France will not follow suit. EU‘s financial market commissioner Michel Barnier also criticized the decision, emphasizing the need for a common response. Angela Merkel is getting more and more isolated.

All effort to display European unity have once again by defeated in full public limelight.

“Merkel is either criminally incompetent, or driving Europe off the cliff on purpose. We suspect it is the former,” the eurointelligence.com writes.

The reaction to Germany’s unilateral decision was one of shock and disbelief. Global stock markets plunged. European markets were down by 3%.

The euro plunged, but later recovered. Criticism focused both on the decision itself (somewhat strange since most CDS activity is in London, not Frankfurt), but more important on the the unilateral way it was decided.

The Financial Times writes that the German decision was a quid-pro-quo to appease the Bundestag, where an increasing number of MPs want to link their approval of the EU rescue fund to progress on regulatory reform.

Only on Sunday did Merkel rule out a financial transaction tax as unworkable, as she saw no chance of getting the US and the UK to participate.

Within the space of a few days, this has become Germany’s official policy. As we have observed during the entire financial crisis, the German chancellor is driven by events, and thus entirely predictable.

El Pais quotes a Commerzbank analyst as saying that the German decision was seen as a desperate move, that signaled to the market that the debt crisis is going to get worse.

Katinka Barysh of the Centre for European Reform says: “Germany feels isolated and misunderstood… The rift, if badly handled, could make Germany’s stance towards the EU more hard-nosed and inward-looking.”

Isolated

German Chancellor Angela Merkel’s curbs on government-bond trading proved a step too far for European allies, leaving her isolated as she pushes for a crackdown on euro-area states that flout budget-deficit rules, Bloomberg reports.

Merkel’s unilateral effort to control what she called “destructive” markets came 10 days after voters angry at aid for Greece dealt her a regional election setback that cost her control of the federal upper house of parliament.

She’s now trying to win support for another loan package that’s due to go to a parliamentary vote tomorrow, this time on Germany’s share of a $1 trillion bailout to backstop the euro.

The political trials of the leader of Europe’s biggest economy and her flip-flop last month on extending help to Greece have fanned investor concerns as the 16-nation currency bloc struggles to counter the region’s debt crisis. They contributed to the euro’s decline to its lowest since 2006,  Carsten Brzeski, an economist at ING Group NV, says.

“Germany is simply not able to come up with a clear line,” Brzeski, who is based in Brussels, says in an interview. That makes investors “start to think, ‘I don’t understand this anymore, I’m going to sell my euros.”

Out Of Control

“The lack of rules and limits can make behavior in financial markets driven purely by the profit motive destructive and lead to an existential threat to financial stability in Europe and even the world,” Merkel told lawmakers in Berlin yesterday.

“The market alone won’t correct these mistakes,” she said.

In an interview with the Financial Times, German finance minister Wolfgang Schauble’s says the financial markets are out of control.

But everyone else seems to think that the German government is out of control.

Market Snap Shots

The euro is still holding on, trading between 1,23 and 1,24 against the dollar in a very volatile market.

EUR/USD:

EUR/JPY:

EUR/GBP:

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Related by the Econotwist:

Merkel: The Euro Is At Risk, Could Have Global Consequences

Europe: The War Is On

E.U. Ministers Fail To Agree On Bailout Details; Run On Euro?

Euro: $1,22 – Panic In Brussels

The Euro Is Going Down; Now Trading Below $ 1,24 (Update)

Killing My CDS Softly

Breeding New Watchdogs

Banks Protesters Storm Irish Parliament

ECB Announces Bailout Program

Europe Is Cracking Up

Bailout Euphoria Is Evaporating

Scandinavian Reactions To E.U. Measures: “We Are Not Safe”

Bank Funding Crunch Deepens as Swap Rates Soar

E.U. Prepared To Set Up Own Rating Agency

Europe To Fight Speculators With “Secret Plan”

Fitch Warns Of New Speculative Oil Spike

European Banks Loaded With Greek Debt

Gerald Celente: “The Great Crash Has Occurred”

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