Guy Haselmann: Pyrrhic Victory?

Pyrrhic Victory?

by Guy Haselmann, Director, Capital Markets Strategy, Scotiabank GBM

·      The weekend negotiations process in Brussels might be as telling as the resulting proposal itself, and may ultimately mark the beginning-of-the-end of the Euro project.

·      The long and acrimonious negotiations clearly showed disunity and a clash in the vision of the direction of the Euro project.

·      Due to a significant lack of trust and to appease a few hardliners, creditors even rejected similar proposals to those put forth prior to the Greek referendum; ultimately, creditors imposed far more stringent demands (which need to be legislated by Wednesday).

·      Should the measures not pass, a 5-year Grexit is the alternative which a confession that the Euro is revocable.  Proposing and agreeing on the details of a Eurozone exit-option is a big deal, because it is the first confirmation by officials that the EU project might be reversible.

·      Until this admission, the Eurozone was always considered to be ‘forever and always’ with no mechanism for exit or expulsion.

·      Draghi’s promise of doing “whatever it takes” can now no longer be true.

·      This acknowledgement will have longer run consequences. It might also demonstrate that creditors are less willing to tolerate perpetual and extreme misses in economic targets.  Ironically, the 1992 Maastricht Treaty requirements have seldom been honored and variance from them has grown worse over time.

·      The intra-EU debate, about how to tackle unsustainable levels of debt and the extent that greater levels of austerity should play, persists.  In the meantime, the social contract between governments and their citizens continues to break down further. The underpinnings for social unrest and election surprises are firmly in place.

·      “The supreme art of war is to subdue the enemy without fighting” – Sun Tzu

Regards,

Guy

Guy Haselmann  |  Capital Markets Strategy
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Scotiabank  |  Global Banking and Markets
250 Vesey Street  |  New York, NY 10281
T-212.225.6686  |  C-917-325-5816
guy.haselmann[at]scotiabank.com

Scotiabank is a business name used by The Bank of Nova Scotia

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