Via Mark E. Grant, author of Out of the Box,
“In time the savage bull doth bear the yoke."
-William Shakespeare, Much Ado about Nothing
Sometimes, certainly not all of the time, one has a certain sense of amusement when eyeing the markets. The head of the ECB says that he will do everything in his power to defend the Euro and the equity markets rally and what did anyone expect the head of the European Central Bank to say? It is rather an obvious statement from his position and one that carries no substance as it is purely rhetorical in nature. We could expect the same comment from Bernanke or the head of any other central bank. The EFSF has only $65 billion left in capital without further funding, the ESM is not in existence, and the German Finance Minister announces that the Stabilization Fund will not be buying Spanish debt and I point out that while Draghi’s remarks are nice and soothing that there is scant evidence that anything will actually be done. The pattern is likely to continue; up on the rhetoric, flat about two days later and then down as nothing is achieved. It is up on the huff and puff, flat as the evidence is awaited and then back down when the door is opened and everyone finds themselves in the hallway of smoke and mirrors of the Mountain King.
As everyone is staring off into the distance and admiring the sunset I advise you to turn your head towards what may be truly important and that is our old friend Greece. The push is on for continuing austerity cuts and the IMF and Germany are none too happy with what is going on in Athens. Crunch time is on in Greece and the country is just about out of money. The Prime Minister of Greece came up with a game plan but could not get his coalition partners to agree with it much less those that have been funding the farce. I use the word “farce” with accuracy because Greece could not pay off its debts without the return of Zeus and Mercury handing over the golden key to the god’s treasure house to Samaras. In the last go round Greece was given just enough money to get by for a few months and now those few months are over. Most of the money doled out by the EFSF went straight back to the ECB to cover the interest on the Greek debt they hold and soon Germany is going to have to make up its mind whether to continue the charade or end the game and watch the fireworks and listen to the very unpleasant words that will spew from the steps of the Parthenon. Summing up the meetings between Greece and the Troika one Greek political leader said, "We agreed on one thing - that we disagree on everything. The Troika men came to Greece as doctors and prescribed the medicine that would save the Greek economy and people; but in the end they proved to be charlatans."
The entire play may be thought of as a stage where various actors play their chosen and appointed parts. Juncker, Barroso, Van Rompuy and Rehn all the mouthpieces for Federalism, all the slap-on-the-back jesters of the chorus and all the singing the same tune from base to falsetto, especially falsetto, when dancing in the chorus line. The Finns all demanding gold for favors and paid in full first please before any agreement is to be carried out. Then there is Maid Merkel and her squinty-eyed uncles who mind the purse, control the strings and humor the rest until an actual coin is demanded and then backs up, purse clenched and the flinty stare of refusal or if not refusal then the learned behavior of Uncle Scrooge. “Them that’s got the gold makes the rules” and never forget that old pirate adage in your thinking. The German’s hold the trump card and the French are along for the ride even if they are no longer riding shot gun and sitting behind the driver now in a somewhat unpleasant cramped seat.
I submit that Draghi can say what he likes. He may wave the flag in front of the gates of Hell filled with good intentions but it is not his call; will never be his call. We are all told and will always be told that the ECB is independent and Draghi politically and as a matter of dogma and background may well favor the periphery and Brunello over ice wine but it will always be the Bundesbank who will allow the monetary spigot to be opened or demand that it be closed.
"I have deceived even your very eyes: what your wisdoms could not discover, these shallow fools have brought to light, who in the night overheard me confessing…”
-Much Ado about Nothing