Best of the Week
Most Popular
1.What Happened to the Stock Market Crash Experts Were Predicting - Sol_Palha
2.London Housing Market Property Bubble Vulnerable To Crash - GoldCore
3.The Plan to Control ALL Your Money is Now at Advanced Stage
4.Why Gold Is Set For An Epic Rally This Spring - James Burgess
5.MR ROBOT NHS Cyber Attack Hack - Why Israel, NSA, CIA and GCHQ are Culpable - Nadeem_Walayat
6.Emmanuel Macron and Banking Elite Win French Presidential Election 2017 - Nadeem_Walayat
7.Trend Lines Met, Technical's are Set - US Dollar is Ready to Rally (Elliott Wave Analysis) - Enda_Glynn
8.The Student Debt Servitude Sham - Gordon_T_Long
9.Czar Trump Fires Comey, Terminates Deep State FBI, CIA Director Next? - Nadeem_Walayat
10.UK Local Elections 2017 - Labour Blood Bath, UKIP Death, Tory June 8th Landslide - Nadeem_Walayat
Last 7 days
SPX/NDX/NAZ Hit New All-time Highs - 27th May 17
GBPUSD Top in Place, GOLD Price Ready to Rocket? - 27th May 17
Silver Mining Stocks Fundamentals - 27th May 17
BBC Newsnight Falls for FAKE POLLS, Opinion Pollsters Illusion for Mainstream Media to Sell - 27th May 17
UK Local Election Results Forecast for General Election 2017 - 26th May 17
Stock Market & Crude Oil Forecast! - 26th May 17
Opinion Pollsters UK General Election Seats Forecasts 2017 - 26th May 17
Bitcoin and AltCoins Crypto Price Correction - 26th May 17
Bearish Head and Shoulders in EURUSD? - 26th May 17
SELL US Stocks - Massive Market CRASH WARNING! - 26th May 17
EURGBP: A Picture of Elliott Wave Precision - 26th May 17
Credit Downgrades May Prompt Stock Market Capital Shift - 26th May 17
Rosenstein and Mueller: the Regime Change Tag-Team - 25th May 17
Stock Market Top - Are We There Yet? - 25th May 17
Should I Invest My Fortune in Gold? Inaugural Lecture by Dr Brian Lucey - 25th May 17
USD/CAD Continues Decline - 25th May 17
Bitcoin Price Goes Loco! Surges through $2,500 Despite Unclear Fork Issues - 25th May 17
The US-Saudi Arms Deal - Sordid Saudi Signals - 25th May 17
The No.1 Commodity Play In The World Today - 24th May 17
Marks and Spencer Profits Collapse, Latest Retailer Hit by Brexit Inflation Tsunami 2017 - 24th May 17
Why Online Trading Platforms Are Useful for Everyone - 24th May 17
The Stock Market Will Tank Hard - 24th May 17
It’s Better to Buy Gold & Silver When It DOESN’T Feel Good - 24th May 17
Global Warming - Saving Us From Us - 24th May 17
Stock Market Forecast for Next 3 Months - Video - 23rd May 17
Shale Oil & Gas Production Costs Spiral Higher As Monstrous Decline Rates Eat Into Cash Flows - 23rd May 17
The Only Metal Trump Wants More Than Gold - 23rd May 17
America's Southern Heritage is a Threat to the Deep State - 23rd May 17
Manchester Bombing - ISIS Islamic Terrorist Attack Attempt to Influence BrExit Election - 23rd May 17
What an America First Trade Policy Could Mean for the US Dollar - 22nd May 17
Gold and Sillver Markets - Silver Price Sharp Selloff - 22nd May - 22nd May 17
Stock Market Volatile C-Wave - 22nd May 17
Stock Market Trend Forecast and Fear Trading - 22nd May 17
US Dollar Cycle : Deep Dive - 21st May 17
Bitcoin Breaks the $2,000 Mark as Cryptocurrencies Continue to Explode Higher - 21st May 17
Stocks, Commodities and Gold Multi-Market Status - 21st May 17
Stock Market Day Trading Strategies and Brief 20th May 2017 - 21st May 17
DOW Needs to Rally Big or Correction is Next - 20th May 17
EURUSD reaches DO or DIE moment! - 20th May 17
How to Get FREE Walkers Crisps Multi-packs! £5 to £28k Pay Packet Promo - 20th May 17

Market Oracle FREE Newsletter

Why 95% of Traders Fail

Has Merkel Just "Blinked" and Saved the Euro Project?

Politics / Eurozone Debt Crisis Jun 07, 2012 - 08:17 AM GMT

By: Christopher_Quigley

Politics
Best Financial Markets Analysis ArticleA picture tells a thousand words. The chart above shows just how grave the situation in Spain is. Europe is in crisis and the euro
is in danger of falling apart.




Things have become so serious that President Obama has intervened and has asked British Prime Minister David Cameron to
travel to Berlin today and put an ultimatum to Chancellor of Germany Angela Merkel: "act before it is too late".

It looks like following such pressure that she has finally blinked and altered her former "stone walling" policy. It looks like Spain
will be granted a bank bailout without giving up the type of sovereign authority demanded of Ireland and Portugal and Greece.

According to news reports:
1. " Brussels' officials are examining the possibility of paying bailout funds directly to the Spanish banking rescue fund rather than to the Spanish government. And Germany’s Angela Merkel is looking for a way to enable Spain’s reluctant premier Mariano Rajoy to access eurozone rescue funds while not having to impose new economic reforms."

2. "Unnamed German officials told Reuters that contingency plans were under way, with lawyers studying treaties, for ways to provide funding without a full-on programme."

3. "Derek Scally of the Irish Times reports that British Prime Minister David Cameron is expected to raise the issue with chancellor Angela Merkel when he travels to Berlin today. Mr. Cameron is expected to pass on to the German leader the central message of a phone call he had yesterday with US president Barack Obama on “an immediate plan for the solution of the crisis and restoration of market trust”.

This departure by Merkel, if it proves to be true, will be a game changer. Confirmation will be great news for world stock markets.

It looked like the Spanish banking system was on the verge of collapse. Spanish officials were refusing to request an IMF/EU bailout along the lines forced on Greece et al even though the bond market had effectively closed its doors to Madrid. The premier Mariano Rajoy was of the opinion that additional austerity that such a bailout would demand would cause political and social chaos throughout the Iberian Peninsula. With the bond market defunct Spain's only alternative would have been to print its own currency. This recourse would only have been possible if Spain left the euro. Such an unthinkable possibility motivated George Soros to state the following at the Festival of Economics at Trento Italy last week:

"It is impossible to predict the eventual outcome. As mentioned before, the gradual reordering of the financial system along National lines could make an orderly breakup of the euro possible in a few years time and, if it were not for the social and political dynamics, one could imagine a common market without a common currency. But the trends are clearly non-linear and an earlier breakup is bound to be disorderly. It would almost certainly lead to a collapse of the Schengen Treaty, the common market, and the European Union itself. ( It should be remembered that there is an exit mechanism for the European Union but not for the euro.) Unenforceable claims and unsettled grievances would leave Europe worse off than it was at the outset when the project of a united Europe was conceived.

But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany. It would leave Germany with large unenforceable claims against the periphery countries. The Bundesbank alone will have over a trillion euros of claims arising out of Target 2 by the end of the year (see note below), in addition to all the intergovernmental obligations. And a return to the Deutschemark would likely price Germany out of its export markets not to mention the political consequences. So Germany is likely to do what is necessary to preserve the euro - nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer payments. That would turns the European Union into something very different from what it was when it was a "fantastic object" that fired people's imaginations.

It would be a German empire with the periphery as the hinterland."

Today it looks like Angela Merkel has heeded Mr. Soros' advice and gone for the "least worst" option. Should she manage to convince her political backers to allow future bank bailouts without sovereign interference Spain will probably agree to stay within the euro. Such a mechanism would also suit Italy should the need arise. The only problem now is that the fund required to solve this problem will need to be in the magnitude of 2 - 3 trillion euros. This is why I think President Obama and David Cameron have decided to get directly involved. The game now is only open to high rollers and the stakes could not be higher. We certainly are living through historic days.


Author's Note: TARGET2 is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem. TARGET stands for Trans-European Automated Real-time Gross settlement Express Transfer system. TARGET2 is the second generation of TARGET.

Payment transactions are settled one by one on a continuous basis in central bank money with immediate finality. There is no upper or lower limit on the value of payments. TARGET2 mainly settles operations of monetary policy and money market operations.

TARGET2 has to be used for all payments involving the Eurosystem, as well as for the settlement of operations of all large-value net settlement systems and securities settlement systems handling the euro.

TARGET2 is operated on a single technical platform. The business relationships are established between the TARGET2 users and their National Central Bank. In terms of the value processed, TARGET2 is one of the largest payment systems in the world.

Source: European Central Bank website.

By Christopher M. Quigley

B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.

Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web   sites based in California, New York, London and Dublin.

Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.

© 2012 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife