Quote of the Day:
Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time…
Excerpt from new German EU Budgetary Plan
Macro Overview
The Default Semantics
- More and more people are jumping on the Greek default band wagon. A Bloomberg post reports that Krugman says the writing is on the wall. Even Merkel has softened her tone on the possibility of a Greek default trigger.
- You know my view, dear reader; whether ISDA defines the trigger “on” or “off” it’s all semantics (that’s the polite word) to me. The moment a politician utters the words: “private investors will be asked to take a voluntary haircut” on something or other, you know that “special relationships” are at play… and here’s the thing about special relationships … someone is always getting screwed (that’s the polite word).
- But Merkel made some interesting noises this week. The Germans have been playing tough love with the PIIGS throughout this crisis, especially the Greeks, but it appears they’re now cornering the Greeks in an almost untenable position. As it stands, the choice given to the Greeks is: either a generation of poverty via oppressive EU-enforced austerity, or, default and painful exit from the Eurozone (and possibly a similar societal fate, as they lose access to market funding).
What Do The Germans Want Of The Greeks?
- I’m just going to insert the headline in the Washington Post, you can decide whether you need to read it, but I think the headline says it all: German proposal seeks EU commissioner with sweeping powers to directly control Greece’s budget. I just want you to think about something for a minute: can you imagine if this was being imposed on your country, your culture, your family’s way of life? I have nothing against the Germans at all, in fact I have frequently voiced sympathy, but I wonder why Merkel is insistent on flogging this dead horse, what does exactly does she want from this? What is she hoping to gain?
- Of course, Eurozone nations with less political clout should have seen this coming miles off – the Eurozone binds nations together, that means more “special relationships” – small nations making big sacrifices, even if it appears big nations make only small sacrifices. Insolvent peripherals had a responsibility to respect and honour the spirit of the Union, they did not. But Germany’s “suggestion” to station an EU political security guard (for want of a better phrase) at the heart offending country’s government is an invasion of sovereignty and a corruption of democracy. I’m not saying that this is not the right thing type of policy if you believe in the dream that is a cohesive, harmonized and centralized Europe. Indeed, it may come as a surprise to some that I actually proposed these types of fiscal checks and balances and punitive measures in my treaty suggestions a months ago. But my suggestion was forward-looking, not like this. How far does one need to go to “make an example out of Greece” – there were collective failures in the development of Eurozone structure – at times when Germany and France themselves were the culprits. Today, though, the goalposts were not moved for Greece, instead Greek national pride has been crushed, in a manner which makes political claw-backs seem a little retro-actively aggressive in nature. These Germanic impositions could easily be interpreted as vindictive or vengeful in a country where nearly half of all under-25s are unemployed.
- That said, this type of political confrontation (between the German elite and the Greek public) was always coming, and if it was in plain view of a lonely blogger in the English countryside, everyone in Europeshould have seen it miles out.
- A great piece by STRATFOR on Germany’s role in Europe puts it more succinctly than I could, here is an excerpt:
The German move into questions of sovereignty has raised the stakes in the debt crisis dramatically. Even if the Germans simply back off this demand, the Greek public has been reminded that Greek democracy is effectively at stake. While Greece may have borrowed irresponsibly, if the price of that behavior is yielding sovereignty to an unelected commissioner, that price not only would challenge Greek principles, it would bring Europe to a new crisis.
That crisis would be political, as the ongoing crisis always has been. In the new crisis, sovereign debt issues turn into threats to national independence and sovereignty. If you owe too much money and your creditors distrust you, you lose the right to national self-determination on the most important matters. Given that Germany was the historical nightmare for most of Europe, and it is Germany that is pushing this doctrine, the outcome could well be explosive. It could also be the opposite of what Germany needs.
- There is a worrying tone to the political differences being exposed here. I’m not thinking in terms of economics anymore, I mean political, cultural and societal confrontation in its purest and most volatile and unpredictable form. What exactly does Germany want from Greece? Get down and beg for forgiveness? Design flaws of the EU structure were a collective responsibility. No doubt, Merkel has played her cards impeccably in European political arena, maneuvering herself, not only into a position of strength, but as the apex political authority in the Eurozone. But I think that’s enough maneuvering… what exactly does Germany want? After all, as I said a few days ago, nobody benefits from a disharmonious, disenchanted, disgruntled Europe… not even Germany.
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Market Overview
Will The Market Click The “Like” Button?
- So may opinions about the Facebook IPO? Where will it list? Why didn’t Goldman get the deal? Where will it price? Is Zuckerberg the next Steve Jobs? I don’t know the answers to these questions… I’m just happy the Eurozone Crisis is not the only topic of discussion for a change.
Merger Of Equals In The Mining Sector
- Xstrata and Glencore merger is a biggie. XTA was up 10% inLondontoday and Glencore was up 7% – that’ll be a $100 billion company… so about the same size as Facebook! I wonder if we’ll see more consolidation in the sector.
- On the subject of mining, Chart of the Day is Gold – been a while since I’ve put one up. This is a chart of the price movement (in Dollars, of course) since the beginning of the Year.
Chart of the Day
Gold (Source: Bloomberg)
Events
Macro Events:
Update:
- Nothing Significant
Alerts:
- ISM Non-Manufacturing
Corporate Events:
Results:
- Annaly Capital [NLY], AON [AON], BT Group [BT/A LN], Christian Dior [CDI], Denso [6902 JT], Estee Lauder [EL], Panasonic [6752 JT], Volvo [VOLVB SS],
Dividends:
- Intel [INTC],
Reading, Links:
Nothing Significant
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Tags: Debt, Default, Dollar, EU, Euro, Europe, Eurozone, Facebook, Fed, France, Germany, Gold, Greece, Inflation, macro, Macroeconomic News, Merkel, PIIGS, Politics, SEC, Sovereign Debt, Stability and Growth Pact, Steve Jobs, TIPSTER, UK, Unemployment, US
Michael Kudrna
