Monday, 25 June 2018

Angie... You can't say we're satisfied

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What has been astonishing is the change in attitude towards Germany. After two years of beating up on the Boche and of blaming them for not presenting a blank cheque to the rest of Europe, the detractors find themselves wearing the Emperor’s new suit of clothes…

Anthony Peters, SwissInvest Strategist

… now that Berlin has more or less backed down and given the rest of the eurozone – or should that not maybe be “euromoan” – its way by permitting the unlimited bail-out fund to be provided by way of the ECB balance sheet.

With a calm “You wanted it; you’ve got it….what do you do next?”, Mutti Merkel has passed the buck back to the others.

She is not juggling with three oranges but with six hand-axes – and so far she hasn’t dropped any of them.

We have spent much time arguing that giving way was going to lose her the next election but, ironically, it was probably a very smart political move for the domestic audience as well. She has performed a perfect “Daniel in the lion’s den” and has pacified the enemy by extracting a painful thorn and at the same time has stopped the sniping from the Club Med as well.

Given the way in which the German economy has benefited from its Eurozone membership – I can’t see anyone daring to argue against that – the political opposition will find it hard to sink its claws into her stance.

Please don’t get me wrong – the overall fiscal mess across the continent is just as bad as it was before but the risk of markets panicking has been dispelled as the results of the recent Spanish bond auctions have proven. Word is out that the budgetary measures are being prepared which could lead to a rescue package – oops, sorry, an assistance package – for Spain and the FT suggests this morning that it will could be aired by Thursday next.

As recently as Monday, the Belgian central bank governor Luc Coene was on the wires making the ECB position quite clear that unless Madrid took the aid, the ECB’s purse strings would remain firmly knotted. The late British Prime Minister Harold Wilson famously said that a week is a long time in politics. He will never know quite who right he was.

Axes, not altruism

Merkel certainly doesn’t hold a PhD in altruism and it could well be that the change of heart is helped along by the appreciation that a European recession and a slowing in Chinese demand at the same time don’t help her personal political cause. As she has no influence on China, all she can do is to release some of the economic pressure off her European partners in the hope that the decline in demand for German goods which is now clearly beginning to affect parts of the export community can be stemmed. She is not juggling with three oranges but with six hand-axes – and so far she hasn’t dropped any of them.

That aside, as much as the USA with its own fiscal issues has enjoyed not being in the spot-light for quite some time as all and sundry has been focused on Europe, so the Europeans will be able to relax a wee bit over the coming six weeks as focus turns to the Presidential election campaign. As is, the bookies have it that Romney is a busted flush with no more than a one in three chance of winning and that President O’Bama has a clear run to re-election. Nevertheless, the questions as to what happens next will increase and the old “Fiscal Cliff” thing will begin to push its way onto the front pages. I stick with my view to sell the dollar for the euro on a six month to twelve month horizon. Could we add to the chartists’ much loved RSI, the relative strength index, an RWI, a relative weakness index, for the benefit of fundamentalists?


Alas, it is that time of the week again. All that remains is for me to wish you and yours a happy and peaceful weekend and may you slip past the autumn equinox tomorrow without further ado. While the Spanish leaders rack their brains over how to cut back enough to please the Eurozone partners, may you and the family get out in the garden and show them how it is done.          

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