From Mark Grant, author of Out of the Box
A Tale of Two Cities
Euro bonds “didn’t find much support” at the EU conference.-Jean-Claude Juncker
“A majority of European Union leaders at a Brussels summit this week backed joint euro-area bonds.”-Mario Monti
Encapsulated in these two comments is the problem that Europe is now facing. Two views, two radically different positions and no agreement on a middle ground because there is not one. Of course the periphery countries, the weaker nations want Eurobonds because it would dramatically drop their cost of funding. Of course Germany and their stronger EU countries do not want it because it would dramatically raise their cost of funding. Nations, in the end, will act in their own self-interest, this has been proven more than enough times in history, which is why I stand by my conclusion that Eurobonds will not be forthcoming regardless of the polite rhetoric attached to them. Germany cannot and will not ever accept Eurobonds not only for this reason but because it would not only raise the cost of their borrowing dramatically and because it would lower their standard of living, over a period of time, to the median of all of the Euro-17 nations and that would not only be political suicide in Germany. I therefore state that regardless of any and all pandering in the Press that Eurobonds will not happen because it is a political non-starter in Germany, Austria, Finland et al. They are like the Titanic; dead in the water.
Beyond this single issue is also the widening rift between the European Socialists and the Conservatives. Without assuming any moral high ground; Europe is now split between one view of the world and a distinctly separate second viewpoint and this will make the governance of Europe not only difficult but very close to impossible. I fully expect any number of issues where you have a Socialist majority and an intransigent German led Conservative minority where vetoes will be used, threats will be made and no compromise will be found. All of the pushing by the weaker nations will result in a backlash where the funding countries will not allow themselves to be impaired by the lifestyles of the poor and begging and the flare-ups could become quite intense. Nothing was achieved at the summit this week and nothing of substance will be achieved at the one in June and floundering on the beach may be the only actual result. The fish is out of the water; let the sputtering commence.
"Waste forces within him, and a desert all around, this man stood still on his way across a silent terrace, and saw for a moment, lying in the wilderness before him, a mirage of honorable ambition, self-denial, and perseverance. In the fair city of this vision, there were airy galleries from which the loves and graces looked upon him, gardens in which the fruits of life hung ripening, waters of Hope that sparkled in his sight. A moment, and it was gone. Climbing to a high chamber in a well of houses, he threw himself down in his clothes on a neglected bed, and its pillow was wet with wasted tears."
-Charles Dickens, A Tale of Two Cities
- The Strategic Death Wishes
- Eurobonds will be forthcoming shortly.
- The ECB will be doing another round of LTRO any day now.
- Greece will not exit from the Eurozone.
- Spain will not need to approach the EU for financial assistance.
- Germany and France will reach a compromise position.
- Portugal and Ireland will be just fine and not need any further funding.
- America has decoupled and will not be impaired by the recession in Europe.
- The Euro is stable and will not decline further.
- Treasuries cannot have lower yields from here.
Mark J. Grant, Managing Director of Corporate Syndicate and Structured Products for Southwest Securities, Inc
Copyright © Mark Grant
