Swing by www.gainspainscapital.com [10] for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.
Today as was the case a month ago, everything ultimately hinges on Germany. Political intrigues aside, Germany is just about out of money. And Merkel has to decide… save Germany or save the EU. Only one of these options is even possible at this point (save Germany) as the EU is beyond saving.
Why do I say this? The EU banking system is €36 trillion trillion in size. Total Eurozone banking deposits stand at €15 trillion. Even deposits at the current EU “problem” countries (Spain, Italy, Portugal and Ireland) are €5.5 trillion.
Germany doesn’t have the funds to backstop even 10% of this. That’s a fact. No one does. The money simply does not exist. And if the ECB decided to print it, Germany would walk out of the Euro (it may in fact do this regardless of what the ECB does).
These are the facts pertaining to Europe. Everything else (all the claims of new plans/ new strategies, all the stories of secret meetings, all of that garbage) is just one great big distraction.
Europe’s tired engine
As the euro zone goes into another recession, Germany is slowing down
Until the end of last year, German growth seemed to be gathering speed. Then some warning signs started to appear. The business-climate index of Ifo (Institute for Economic Research), which started falling in August 2011, has edged more or less persistently down. In July business expectations hit a low not seen since mid-2009. The Markit/BME purchasing managers’ index, which measures the state of manufacturing, also started to fall last year; in July it too hit its lowest level since June 2009. This fall was reflected in a drop of 1.7% in new contracts won by German companies in June, compared with May—including a drop of 2.1% in domestic orders and of 4.9% in orders from the euro zone. “And we don’t see the orders that were cancelled,” points out Thomas Hüne, an economist at the Federation of German Industries.
http://www.economist.com/node/21560601?fsrc=nlw|wwb|8-16-2012|3117721|38031410| [11]
The majority of Germans are fed up with Greece, worried about inflation, and want the Deutsche Mark back. Also bear in mind that Angela Merkel is up for re-election next year. So while Germany has voted to ratify the ESM, look for increased tension to escalate between the ECB and Germany going into year-end.
Swing by www.gainspainscapital.com [10] for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.
Best
Graham Summers