Greek Drama Turns Into Crisis of Confidence

Tuesday, 11 May 2010 04:25 PM

By Hans Parisis

  Comment  |
   Contact Us  |
|  A   A  
  Copy Shortlink
Regarding Europe, one thing is for sure: Confidence is not back!

After this weekend's nearly $1 trillion European/IMF rescue package (which, in my opinion, is primarily aimed to rescue French, German, and all the other banks — and to a much lesser extent the "Club Med" countries, plus Ireland), it now becomes clear that the package is failing to convincingly detract investors from the real euro tail-risk scenario.

Yes, nothing fundamentally changed in the euro zone except that we have a new situation whereby the “rulers” will try to give a temporary solution to irresponsible debtors with more irresponsible credits.

Therefore, at least in my opinion, the bias in terms of longer-term trend with the euro/dollar is still heading down to the $1.15 to $1.20 by late summer.

In the meantime, the world has learned that the euro zone is a monetary union that looks hopelessly compromised by real divergences that will give long-term players, notably foreign central banks and sovereign wealth funds, pause for thought when considering reserve alternatives to the U.S. dollar.

The front-loading of euro fiscal austerity among periphery countries that are fast losing their fiscal sovereignty points to the “lower EU rates for longer” story.

We can say that the euro’s downside path is definitively in place.

I’m not saying it’s going to collapse but as things are being constructed, there is no stronger euro in the cards, at least not in the foreseeable future.

That said, and from a global perspective, we also must say the rescue package provides much-needed breathing room for all these countries that have transgressed on fiscal matters. The nearly $1 trillion plan should give them more time to get their houses in order.

To that extent, we now have a positive story for risk, relative to where we were last Friday.

Nevertheless, Germany's opposition Social Democrat Thomas Oppermann said had not decided whether to support the European rescue package for the euro. He warned that the country could end up footing the entire cost of the bill.

Also, the German opposition Greens said on Monday the plan was unlikely to come to a parliamentary vote before June.

The make-up of the German upper house (Bundesrat) is still unclear after Chancellor Merkel's coalition lost its “automatic” majority in the extremely important elections in North Rhine-Westphalia.

Germany's biggest selling daily, “Bild” said on its front page: “We are Europe's fools again!”

That should give us an idea of how many Germans think about the rescue package and what kind of troubles are in the making.

© 2014 Moneynews. All rights reserved.

  Comment  |
   Contact Us  |
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
Zip Code:
Privacy: We never share your email.
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Where's Sound Growth in the World Going to Come From?

Tuesday, 21 Oct 2014 09:42 AM

Long-term investors should ask themselves: "The day such a sudden volatility spike occurs would my investment still be l . . .

Buying the Dips Might Change to Selling the Bounces

Tuesday, 14 Oct 2014 08:50 AM

Now that the International Monetary Fund (IMF) and World Bank Annual Meetings in Washington, D.C., have concluded, I don . . .

The US Dollar Can't Save the World

Wednesday, 08 Oct 2014 09:32 AM

After the International Monetary Fund (IMF) released its latest World Economic Outlook (WEO), the global markets apparen . . .

Most Commented

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
©  Newsmax Media, Inc.
All Rights Reserved