Jean Paul Trichet has a bold idea to save the euro. He wants to give European politicians the power to declare a sovereign state – read Greece – bankrupt and take over its fiscal policy. No, this is not a news from Onion. Ex-President of ECB unfurled his plan ahead of the G8 summit at Camp David this weekend.
According to Trichet, this is an alternative way to address the politically unpalatable, “a fully fledged United States of Europe where nation states cede a large chunk of fiscal authority to the federal government”. As an alternative, he suggests to take a country into receivership when its political leaders or its parliament cannot implement sound budgetary policies approved by the EU.
The nuance is lost on me. If ceding fiscal authority is unpalatable then how can any nation will sign off to be taken into a receivership? Maybe I have to be a European or French to understand it but will it be like FDIC taking over a bank or the US Government taking over GM or BoE taking over Northen Rock?
Then there is G8, including a grudging and isolated Chancellor Merkel, which insists that Greece should stay in Euro. And in their announcement there is a victory dance – if you can notice it.
The communique, which had the growth promise at the top, represents a victory for Obama and the new French president, François Hollande, over German chancellor, Angela Merkel, who has resisted calls for a stimulus package.
Maybe, just maybe, some of it is having an impact as the fearful Greeks seem to be heeding to Europe’s pleadings of ‘don’t self-destruct’
Polls show support for pro-bailout parties rising despite bitter opposition to austerity out of fear of eurozone expulsion.
So what does it all mean? It means that Humpty Dumpty still hasn’t been put back together. In fact, All the king’s horses and all the king’s men haven’t even started yet.
“As expected, the G-8 led to little concrete measures on how to stimulate growth, particularly in Europe,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Major governments and central banks are a bit in a wait-and-see mode at the moment; but financial markets are not.”
European policy makers will meet informally on May 23, yet decisions are unlikely before a June summit, which is “a light-year for markets,” Costerg said. Italian Prime Minister Mario Monti said he will meet next month with his German and French counterparts in Rome ahead of the EU summit.
It also means that next week is again going to be topsy-turvy – more on that later. So it is still a good bet to be short EUR/USD. But (there is always a but in trading)
Yet a Greek exit—and a euro plunge against the dollar—is far from assured. This past week, German Chancellor Angela Merkel said she is determined to keep Greece in the euro zone, and is willing to do more to boost Greece’s economy.
Adding to the riskiness of the trade: Almost everyone is bearish on the euro. Recent data from the Commodity Futures Trading Commission shows that traders are betting heavily against the currency.
