Thursday, November 25, 2010

Bailouts "Über Alles" Today

Axel Weber was vocal already yesterday. The economists at Commerzbank, in addition to comment at Bloomberg, wrote:
Germany’s most important central banker, the head of the Bundesbank Axel Weber, therefore made it clear yesterday that if necessary the EFSF funds would be increased and speculation against the euro was therefore pointless. To the surprise of many in the audience he pointed out in a speech in Paris that we were no dealing with a crisis of the euro and the Eurozone but the problems of individual countries. So what are we to make of his comments? (1) Weber’s monetaristic view that we were dealing with a crisis of individual countries rather than of the Eurozone is correct. But from the instance when the Eurogroup decided to help Greece and then extended the rescue package to all other countries it became a crisis of the Eurozone. (2) The reference that if necessary the EFSF funds would simply be increased is intended to illustrate to the markets: we will stick to our plans and we know what to do. The announcement is however quite dangerous. After all it is far from certain whether the funds can be increased as easily as that. The German chancellor for example would have to face the Bundestag once again asking for further funds. There is likely to be increased resistance in other donor countries too. So there is a danger that markets are going to consider also this statement to be premature thus increasing market scepticism regarding the ability to act among those responsible. (3) So that leaves Weber’s assurances that an attack on the euro was pointless. The fact alone that there are transactions worth USD 1000bn. in EUR-USD every day illustrates that there cannot be any speculation. What we are experiencing at present is not a speculative attack but a (justified) depreciation due to unsolved problems. Moreover levels above 1.30 in EUR-USD demonstrate that the euro is still not a weak currency.
But today's headlines from DowJonesNewswires provided another boost for equities again, should read bottom-up for historical appearance:
*DJ ECB Weber: Fiscal Policy, Not Euro Itself, Is Source Of Current Problems

*DJ ECB Weber: Crisis Has Damaged Euro-Zone's Function As Stabilizer
*DJ ECB Weber: Future Mechanism Won't Impact Existing Contracts
*DJ ECB Weber: Swift Decisions On Mechanism Would Calm Markets
*DJ ECB Weber: Need Well-Prepared Crisis Mechanism
*DJ ECB Weber: Need Broad Early Warning System Going Forward
*DJ ECB Weber: Euro-Zone Sanction Proposals Not Automatic Enough
DJ ECB Weber: Euro-Zone Members Have No Choice But To Protect Euro
*DJ ECB Weber: EUR140B More In Aid Would Be Supplied If Necessary
*DJ ECB Weber: Spain Highly Unlikely To Need Euro-Zone Aid
*DJ ECB Weber: Scenarios Where Existing Bailout Too Small Almost Impossible
*DJ ECB Weber: Existing Euro-Zone Bailout Only Too Small In Most Pessimistic Scenarios
*DJ ECB Weber: Euro Is Not In Danger
*DJ ECB Weber: No Functional Alternative To Euro
*DJ ECB Weber: Euro Among World's Most Stable Currencies
Click on intra-day chart of German DAX Equity Index to enlarge, courtesy of enlarge, courtesy of Bloomberg.

While the Spanish 10-year government bonds remained little impressed, click on intra-day chart, courtesy of Bloomberg.

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