Photo: flickr user: isafmedia
Let’s take a look at today’s news out of Europe: as Bloomberg reports in “Germany Shoots Down ‘Dreams’ of Swift Crisis Fix,” “German Chancellor Angela Merkel has made it clear that“Dreams that are taking hold again now that with this package everything will be solved and everything will be over on Monday won’t be able to be fulfilled,” Steffen Seibert, Merkel’s chief spokesman, said at a briefing in Berlin today. The search for an end to the crisis ‘surely extends well into next year.”
Interestingly (and thankfully – a measured response!), “The euro retreated as much as 1 per cent to $1.3739 from a one-month high against the dollar after Seibert’s comments.”
Not-so-shockingly, a trader/economist expressed woe at the obvious fact that things are going to inevitably get worse before they better, claiming, “‘We’re looking at a really big disappointment if we don’t get a funded, operational and agile response to the bank recapitalization problem as soon as possible.'”
Well, duh. Yes, an easy solution WOULD be nice, and would in turn certainly stem panic and the resulting chaos in the markets when Greece inevitably defaults, a few Euro-states quickly follow suit (anyone check Italian bond yields today? Yikes), and Ireland stages a mini-coup.
Instead, let’s look at the poli-cultural facts on the ground. As things between Greece and the EU (aka, Germany, with a dash of France, at this point) currently stand, Euro-leaders find themselves scrambling to put a political fix on a economic problem (a lack of central bank tends to hurt attempts at fixing monetary issues),while simultaneously (and laughably), Greek citizens/workers are in the midst of a 10-day protest to, you know, get out of paying recently-levied taxes.
Think about that: while the E.U. panics at the thought of Greek default, Greece itself is rebelling at the concept of personal and national responsibility, essentially thumbing its collective nose at the Germans who, at this point, are essentially financially shouldering the entire EuroCrisis burden. Obviously, more than the numerical logistics involved in solving this crisis, the political and cultural clashes emerging do not portend well for a quick-or-easy solution.
Consequently, markets, you’re playing your financial hand wrong – completely misreading the news out of Europe. While it’s not shocking that the Euro dropped one per cent after Merkel’s spokesperson came out and basically claimed, “We can’t fix this!” this drop should have come sooner (and been built more quickly and effectively into the Euro’s valuation).
In short, the E.U. and Germany can’t make it any clearer: moving forward, we must operate, trade, and do business on the assumption that while something can be done to stem this crisis (most likely figuring out which countries to ultimately kick out of the Union), the E.U. doesn’t have all the answers.
Listen to Merkel (and her people). She (they) know/s what’s going on.
Margaret Bogenrief is a partner with ACM Partners, a boutique crisis management and distressed investing firm serving companies and municipalities in financial distress. She can be reached at [email protected]
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