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Will Angela Merkel Make or Break the Euro?
Earlier this
week I noted that the Euro bounce could likely be a head-fake if the US Dollar
rallied. Today, we got precisely that development, with the US Dollar rallying
hard off of the bottom trendline in its downward trading channel:
This
forecasts a move to 80.5 or so (the current upper trendline). And if we break that then we’re likely going to 83 in
short order.
This
development has brought the Euro dangerously close to breaking support:
This has been
THE support line since August. Take it out and we’re going to at least 127.5 If
not 122. Indeed, the big picture remains extremely bearish for the Euro in the
intermediate term, suggesting a break below even the June lows of 118:
From a
political standpoint, the Euro’s strength into Christmas was somewhat expected.
Politicians and their cronies the bankers, will do anything they can NOT to
have a Crisis during Christmas (the social response would be brutal given that
99% of people would be on holidays at the time).
Now that the
holiday season is over, and the European crisis spreading into Portugal, the
question is: how much more will Germany put up with? The “bazooka” has come out
and been fired ($1 trillion bailout fund is almost entirely spent). The issue
now is whether Germany’s ready to take aim with an even bigger bazooka, or if
it’s going to give up on the Eurozone and choose to end the bailouts.
France wants
Germany to join its plan to make the EU council a kind of economic government
that would oversee all future bailout efforts.
Germany, in
contrast, doesn’t want to create any new organizations but simply wants to
shift the pre-existing European Financial Stability Facility into a permanent
feature that would oversee the ongoing Crisis, removing the European Central
Bank from it AND demanding stricter cost-cutting measures from future
recipients of bailouts.
How will all
of this play out? I don’t know. But one thing I DO know is that German
Chancellor Angela Merkel’s political party faces seven state elections in 2011.
Losing these could mean no additional term for her in 2013. So Merkel needs to
be careful not to further irritate and already outraged German populace (51% of
Germans are unhappy with the Euro while 77% say joining the EU has brought them
nothing good).
Thus, all
eyes should be on the German political arena for clues as to what’s coming for
the Euro. If Germany doesn’t go “all in” on the Euro as a currency now, the
currency crisis will return in full effect and make last June look like a
picnic.
Good
Investing!
Graham
Summers
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Nice article, and several insightful comments. Xiexie.
Yes Angela is becoming very Russian or is it Swedish ?
www.youtube.com/watch?v=ygQvB6OjHOU
Always loved the black Irish humor, Dork.........must come to visit.
I bet China has it eyes on many of those uninhabited islands that dot all over the Greek area of inlfluence.
No, the last big island they had, broke away and refuses to come home to mama...
From a long term perspective, it makes sense that Germany would want to see it's banking entities having the dominant position in Europe. How you achieve that depends on what vision one has of the European banking community going forward.
France et al's desire is to maintain the status quo. That means Europe continues to be over-banked and each EU nation can sustain their sickly national banks. There is no future in that vision. The European banking fraternity needs to be culled (to a certain degree). Where would Britain fit into all of this?
As you can see, we have a number of critical political questions that crop up.
First, Germany needs to sit on the fence for as long as possible, to draw in as much self-serving help as is possible. China is willing to help in a self-serving way. I suspect the US will also help in a self-serving way. Once they are partially in, what role do they play in the various EU domestic markets and what role is left for the remaining European nation-states.
I assume you see the thin edge of the wedge, as the EU is primed to be broken up. What is worth saving? Who will save it? What can be made of the new influence the saviours would have?
Germany should want to form a defensible EU-centric-domestic market with like-minded EU entities. They can't save everyone. They will have economic/marketing difficulty with any EU entity that has accepted Chinese, American, or British financial help.
It would be prudent to consider the options that cut your losses. Leave many of the PIIGS to their fate. China, Britain, and the US will have a future role in the governance of the PIIGS, irrespective of the significant amounts of money Germany would have spent. Those failed states will blame Germany for the obvious decision of the PIIGS to accept new economic overlords.
Play for time and play off the forced decisions that result from Germany's non-commital to French entreaties. The British do not need to be the only banking fraternity that can hold their cards close to their chests.
So, how do you see the map being redrawn, Canuklehead.
And, where would Britian fit into all of it after all is said and done?
As a supplement, here are a couple of interesting articles.
http://imarketnews.com/?q=node/24622
http://imarketnews.com/?q=node/24628
Thanks for your reply, and links to the articles.........very informative.
The Euro/(USD) is sitting right at the 200 SMA (Daily) this AM..........1.31........looks O/S on the shorter timeframe charts.
At the present time, Britain is sitting on the fence. Germany should join them. The first one to get off the fence and commit to a fiscal restructuring plan will have planted their flag in this mess and the other party can play "real politic" with the former's commitment.
A great deal of the global banking problem resides in the regulatory chase to the bottom. Financial institutions ran to Ireland for these reasons. Britain and Germany need to work out a regulatory deal in order for both to move ahead in a concilliatory manner. These discussions would result in Germany gaining and Britain losing. Britain can't afford that outcome as considerable tax revenue and geopolitical influence flows from the "world's capital for banking".
Britain doesn't have a lot of cards to play other than to support France in the push to lock down Germany.
Very interesting thoughts. Thank you.
Cooter
The German people want their own currancy...
Not a one world government.... Freedom Now...!
Exactly. And buy rural escape land. Peace