Frankfurt or Jackson Hole

Mario Draghi and most European Central Bank members will not come to Jackson Hole. The exception is the Bundesbank’s president Jens Weidmann, who will come for one day.

The issue in Europe is simply a negotiation attempt for an agreement to establish the ESM (European Stability Mechanism), assuming that the German constitutional court approves or requires modifications that are acceptable.

As soon as the agreement is complete, a new European financing mechanism will be implemented. The mechanism will be styled in part after the US system of primary dealers that directly deal with our Federal Reserve and implement policy by buying and selling American sovereign debt, US Treasury securities.

The difference in Europe is that Mario Draghi cannot implement this process if it conflicts with the Bundesbank. Germany and the German Central Bank represent the largest “capital key” weight in the ECB.

Unlike the US where Ben Bernanke can tolerate dissenting votes (he’s had as many as three) and still implement policy on the Federal Open Market Committee (FOMC), the ECB governing council system operates in a different format. Draghi must accomplish a consensus in order to avoid the problems. He knows that market turmoil will result if he faces dissenting Germany.

Markets will observe these negotiations closely. Watch the upcoming ECB meeting on September 6, 2012. Also look for the German constitutional court decision and the elections in the Netherlands, both on September 12, 2012. There is a lot at stake in Europe. No decisions are final. There is ample opportunity for success or failure and much volatility as Labor Day weekend progresses.

At Leen’s Lodge, our group will observe the events in Europe and in the US. Satellite connected TV and Wi-Fi take this Maine destination into the modern world in real time. Hopefully, there will be a minute or two for some pristine water, a fishing rod, and a friendly cooperative pescado.

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About David Kotok 42 Articles

Affiliation: Cumberland Advisors

David R. Kotok cofounded Cumberland Advisors in 1973 and has been its Chief Investment Officer since inception. He holds a B.S. in economics from The Wharton School of the University of Pennsylvania, an M.S. in organizational dynamics from The School of Arts and Sciences at the University of Pennsylvania, and a masters in philosophy from the University of Pennsylvania.

Mr. Kotok’s articles and financial market commentary have appeared in The New York Times, The Wall Street Journal, Barron's, and other publications. He is a frequent contributor to Bloomberg TV and radio, CNBC TV programs, Fox Business, Yahoo Finance and others.

Mr. Kotok currently serves as a Director and Program Chairman of the Global Interdependence Center (GIC) (, whose mission is to encourage the expansion of global dialogue and free trade in order to improve cooperation and understanding among nation states, with the goal of reducing international conflicts and improving worldwide living standards. Mr. Kotok chairs its Central Banking Series, and organized a five-continent dialogue held in Philadelphia, Paris, Zambia (Livingstone), Hanoi, Singapore, Prague, Capetown, Shanghai, Hong Kong, Rome, Milan, Tallinn, and Santiago, Chile. He has received the Global Citizen Award from GIC for his efforts.

Mr. Kotok is a member of the National Business Economics Issues Council (NBEIC), the National Association for Business Economics (NABE), serves on the Research Advisory Board of BCA Research, and is also a member of the Philadelphia Council for Business Economics (PCBE).

Mr. Kotok has served as a Commissioner of the Delaware River Port Authority (DRPA) and on the Treasury Transition Teams for New Jersey Governors Kean and Whitman. He has also served as a board member of the New Jersey Economic Development Authority and as Chairman of the New Jersey Casino Reinvestment Development Authority.

Mr. Kotok hosts an annual Maine fishing trip, where, it is rumored, most of the nation’s important financial and economic decisions are actually made.

Visit: Cumberland Advisors

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