Wall Street's Response: The Summit Is A Failure

The overnight agreement by 17 European countries to tighten euro-area budget controls and expand bailout funds fails to address key aspects of the crisis and may fall at the first hurdle, analysts and investors say. The summary of various Wall Street expert opinions is compiled and presented below from Bloomberg. It is not pretty.

  • Fidelity’s Trevor Greetham says the agreement misses the point; crisis not about govt profligacy, is a balance of payments crisis, like the one in Asia in 1990s:
    • Policy response has focused on liquidity, has not gone far enough; enforcing austerity “unlikely to succeed”
    • Only full burden sharing, with clear and unconditional ECB support, forceful policies that inflate the core would end the crisis; volatility is here to stay
  • Daiwa’s Chris Scicluna says fiscal tightening, adopting balanced budget rule not a key concern for investors; may lead to deep recessions, even deflationary spirals
    • Fiscal rules wouldn’t have prevented crisis; Germany, France and not Italy, Spain were transgressores pre-2008
    • More cause for cautious optimism on stabilization mechanisms, enhancement of IMF’s resources; implementation risks remain
  • Evolution’s Gary Jenkins says success of the agreement may hinge on “how much hard cash gets behind it;” If euro zone contributions are agreed next week may trigger contributions from others, inc. BRICs, other G20, Japan
  • ING’s Alessandro Giansanti says private sector involvement still possible under new ESM
    • Hardly anything carved in stone, “bazooka” is a trio of smaller fire weapons, national decision-making processes could still spoil last night’s plans
  • BNY Mellon’s Simon Derrick says failure to win agreement of all 27 members raises question of how rules will be administered
    • New funding to IMF smaller than mooted earlier in week; questionable whether sufficient firepower is available to restore confidence in Italy
    • Given compromised nature of political response it is difficult to see investors (or rating agencies) giving the Euro-zone authorities the benefit of the doubt for much longer

But the robots don't care: we are back to blind buying on headlines, until the required 2-3 hours passes for even the 19 year old vacuum tube programmers to grasp that the situation is now the worst it has ever been.