A new month has brought on renewed thoughts of Euro break-ups. We have been asked in our comments column what we think and rather than just replying in the comments column an d having nothing else to say today, thought we would make a post of it. Most of what we feel we have expressed before but to recap –
TMM think, like most, that this is now a political problem requiring political solutions but one must bear in mind that the whole Euro project is the politicians most precious baby with so much dependant politically on its success. The clues we have had from previous high ranking statements are along the lines that they would do “EVERYTHING” (and read “anything” within that) to protect their baby. TMM suggested sometime back that this could include short selling bans and though comments pointed out this would be useless, they have indeed embarked upon direct controls, even though the market sees them as futile. The big difference between this sovereign crisis and the banking crisis is that the sovereigns are in charge of the rules and can change them to suit themselves (as we have seen throughout the unwinding of the Euro dream). The debate should be just how “Gadaffi” the Eurocrats go in defending what they see as theirs. They may well end up holed up in Brussels (like Sirte) denying the obvious and fighting to the death.
If there is to be a Euro break up we see it coming not from the ejection of the PIGS by the core but by “voluntary” resignation by individual countries, much in line with the “decided to spend more time with their families” resignations we see in our world. But this is all a long way off, for as many point out it would be short term disastrous for any indebted nation to step out from under the umbrella of European protection they are currently enjoying during this storm. More likely is the pressure from the core on the periphery to “do something” will increase to the point where the periphery nation has a stark choice. Do what the Eurocrats demand or voluntarily walk the plank. A tough call, when the cutlasses of the Eurocrats are being sharpened but the periphery can see the sharks below.
The real problem is social strife. The tightrope of acceptability in the relevant countries is the riot line, but of course the locals, instead of smashing up their own countries in anger, should go to Brussels and Frankfurt and protest there. TMM have long expected farmers from the periphery to take their muck spreaders North for a day out of graffiti work. We suppose one extreme action that may “focus the minds” would be for the whole populations of the periphery to move into Germany, pitch camp and build homes in their countryside and claim minority rights.
In the short term the ECB have actually been very effective at controlling the speculators main tool of attack by shutting out the periphery debt from play. The CDS market is left for the speculators to beat up on but we think that CDS is a mugs game and really should not be cited as a true example of reality. TMM feel that this attack by the market will be repelled only to be fought again another day.