Angela Merkel is leading the call for a big rule change, a changing the basic rules that binds the EU together. Market action suggests that time is running out. Merkel has called for a new, stronger union with strict control of budgets as the price for further German aid to the countries in crisis.
Nouriel Roubini notes,”The European Commission on November 23 proposed a new package including budget previews at EU level, the establishment of independent fiscal councils and growth forecasts, closer surveillance of bailout recipients and a consultation paper on Eurobonds. There is also a growing consensus among EU policy makers on the need for the adoption of fiscal rules in national legislation. However, it is far from clear whether EU countries would accept the implicit loss of sovereignty this would involve and agree to treaty changes enshrining legally enforceable fiscal oversight at EU level. The German Chancellor, Angela Merkel, is willing to support a change in Germany’s own constitution if the EU Treaty change to that effect is agreed first.”
Prime Minister Merkel wants the treaty change first before she takes it to German voters, which will be required since what she is proposing is not allowed by the German constitution. Without the changes stated clearly and explicitly in advance it is probably unlikely German voters will say yes.
But will the rest of Europego along with what would be a major alterations of their own individual sovereignty and their ability to manage their own budgets? And agree in time to deal with this current crisis? Such changes will be controversial, and it would require a nod from of all 27 European Union members.
That is problematical. As evidenced by the recent Greeceflap where the old prime minister got what he wanted from the EU and then decided to take it to the voters. But will German voters also give up their independence and listen to the EU tell them what they can and cannot do?
This issue has become more pressing as Germanysdebt auction did not go well last week. The German Central bank had to step in and be the buyer of last resort for much of the offering. The market clearly wants a resolution to this crisis and as stated in the previous article if a situation is not sustainable it will not be.
“Italyraised its targeted €10bn in an auction of two year bonds and six month bills but at sharply higher yields. ‘Rates have skyrocketed. It’s simply not sustainable in the long run,” said Marc Ostwald, a strategist at Monument Securities in London. “Investors demanded a yield of 7.81 per cent for the two year bond, up from 4.63 per cent last month.”
Spanish bond yields are just slightly lower but not by much, with both countries paying more for short term debt than even Greece.
And no one was really talking about Belgium. Belgiumdebt yield on its ten year bonds went to 5.85%.
There will be more news on the Merkel proposition as this week unfolds. It will be interesting to see how the market reacts to any developments – forward or backward as it gauges the resolve of EU member countries and any progress.
One can see that they are still working within the constraints of an austerity type solution not wanting to ‘print money’. That may still come. Here in the USausterity measures have never lasted, as the path of least resistance has been to print money. Are Medicare and Social Security recipients going to go along with less? Entitlements are the lion share of the budget. Just how much can defense be cut and still keep us safe from the bad guys?
A poll showed that many Americans think that if they can just get rid of government waste every thing can work out. Not so. It is a far bigger problem than that. So bring on the printing presses. It’s the patch of least resistance, yet we all will still pay.
On a upbeat note Black Friday sales increased 6.6 percent to the largest amount ever as U.S. consumers shrugged off 9 percent unemployment and went shopping. Consumers spent $11.4 billion, ShopperTrak said in a statement yesterday. Foot traffic rose 5.1 percent on Black Friday, according to the Chicago based research firm.
From an analytical standpoint this is a positive but the size of the early morning deals has alot to do with this comparison. Many higher ticket flat panel TVs will tweek sales and retailers are careful to plan for this. Add a few more to that ‘limited quantity’ and its a definate increase over last year. Of course overall margins are just as much at issue so there is the rock and the hard place for retailers to stategize.
How sales continue over the next few weeks will speak just as loudly as to how well retailers will do this holiday season.
Trade with a plan.