First, in a PRELIMINARY ruling, the German Constitutional Court (GCC) failed to block the nation from taking part in the European “bailout.” This was the case filed with the Court by lawmaker, Peter Gauweiler, a Bavarian from Merkel’s party. The court did acknowledge that it will continue to review the case. The Court said:
“Even a temporary retreat of Germany from the rescue plan could,in the government’s view,jeopardizes the rescue fund ,at least in the eyes of the financial markets.”
This decision had the immediate impact of putting a bid to the euro as some shorts ran for cover, but with the market in an extremely short position it doesn’t take much to unnerve the weakest shorts.
The bigger piece we missed last night was a news analysis story by Peter Garnham in the Financial Times. In “Swiss central bank emerges as key supporter of Euro,” Garnham cites the numbers that SNB reserves increased 50 percent last month to $261 billion from $145 billion and that they bought €55 billion to keep the SWISS FRANC from appreciating.
Currency analyst David Gilmore said this amounts to a SNB QUANTITATIVE EASING as the swiss bond market is way too small for them to play there. We agree with that but more importantly the Swiss action causes us to seek out the 2+2=5 view in this. We have played with the idea for several weeks about what would happen if Greece were to drop out of the euro and the flip side would be what impact a German exit from the EURO could have. If Greece and other PIIGS departed, they could devalue their currencies and improve the competitive position of the structural imbalances into which they have waded. If the PIIGS left, we think the EURO would rally as the currency would be the liability of the best economies of Europe. If Germany and the strong northern Europeans were to leave, the EURO would get crushed. In acknowledging the position of the SNB, we have to now surmise that the Swiss’s huge reserve position that has been built up in EUROs has cemented Germany’s in staying within the EURO. If the Germans were to leave the, losses to the Swiss would be immense and the impact on global finances would be disastrous. Wow, the more the world turns …
June 10, 2010 at 10:15 am |
Will the Germans now base their decision on staying in the Euro indefinitely because of concerns with the Swiss and others, when the potential problems in Spain, Italy, Portugal and Ireland will amount in the trillions, many multiplres of the Greek bailout? Will the hardworking German taxpayer have a forgiving attitude when the next crisis arrives?
June 10, 2010 at 10:35 am |
good point fred—but the swiss have a bigger role and ounch way beyond their weight and if the PIIGS drop out are the financial risks at that full number or will it mirror argentina and others in history —-the headline numbers are notional while the swiss numbers are real
June 10, 2010 at 10:42 am |
For any who still read history, or have an interest in prophetic books, the book of Daniel in the Old Testament fortells the future of Europe perfectly.
The entire second chapter of Daniel explains the history of the world from Bablyon (the head of gold in king Nebuchadnezzar’s dream) to the feet made of iron and clay.
The feet represent modern day Europe. They are made of iron and clay as iron and clay do not mix. Iron is stonger than clay and represents the stronger countries (Germany) versus the weaker (Greece).
The effort to unite Europe has failed throughout history and will fail again via an attempt throught the European currency.
Daniel concludes the interpretation of the vision with a rock coming from heaven and smashing the feet of iron and clay. The Messiah is always referred to as ‘the Rock’ in scripture. The Rock smashes the feet of iron and clay causing the statue to collapse and thus brings about the end of the world.
Conclusion: This whole world wide economic mess of debt is going to lead to ‘a time of trouble that no man hath ever known’ and 2+2=5.