The Paradox Of Merkelism And ING's Not-So Grand Bargain - News and Current Events | futures io social day trading
futures io futures trading

The Paradox Of Merkelism And ING's Not-So Grand Bargain
Updated: Views / Replies:279 / 0
Created: by Quick Summary Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Thread Tools Search this Thread

The Paradox Of Merkelism And ING's Not-So Grand Bargain

  #1 (permalink)
Quick Summary
The Paradox Of Merkelism And ING's Not-So Grand Bargain

Despite another weekend of hope-driven chatter of a support-the-profligacy, print-til-we-die, mutually assured destruction game of chicken, we remain as far from the fiscal federalism, that we discussed earlier in the week (and the four critical questions that need to be answered) as ever. As we embark on yet another critical week in Europe's (and perhaps the world's future), ING addressed a critical aspect of the conundrum - that of Merkel's (read Germany's) reluctance to step on the gas and save the known universe. While attempting to quantify the price of break-up and the pay-now or pay-later perspective, they describe perfectly the 'Paradox of Merkelism' in that the core countries' attempts to limit their exposure have served only to increase it. They further worry that while a plan for a Grand Bargain may appear, this may rapidly give way to the recognition that the reality is not so grand - the bargain would still have to be delivered.

ING: Break Up. Pay Now Or Pay Later

The Paradox Of Merkelism - Risky Caution

Amid the rising sense of panic in the financial markets, there is frustration at the hesitant response of policy-makers in the core countries, led by Germany. Although German Chancellor Angela Merkel continues to proclaim “if the euro fails, then Europe fails”, she remains reluctant to sanction the dramatic fiscal and monetary measures that many see as essential to prevent EMU fracturing. The general perception of the financial markets has been that Eurozone policymakers’ actions have been “too little, too late”.

The key to this has been the reluctance of Germany and the core countries to commit more resources. In part, this reflects the political challenge of persuading their electorates of the need to support their peripheral brethren, who are widely portrayed as having brought their debt problems upon themselves.

Please register on to view futures trading content such as post attachment(s), image(s), and screenshot(s).

However, Merkelism is not just about the awkward politics of burden-sharing. It also reflects deep-seated German convictions about the economics of the sovereign debt crisis. It is viewed as largely a result of fiscal ill-discipline on the part of the peripheral economies. The Germanic prescription is therefore fiscal restraint. Coupled with this is Germany’s long-standing antipathy towards inflation, rooted in its past episodes of hyperinflation. As a result, Germany and its core partners have consistently chosen the most austere policy options:

1) reluctance to increase the bail-out packages for Greece and the other peripherals. This culminated in the agreement to try to extend the firepower of the European Financial Stability Fund (EFSF) not with bigger commitments from the member governments but with additional borrowing.

2) an insistence on tough fiscal austerity measures in the peripheral economies. The notion that this ought to be offset by fiscal relaxation in the core countries is rejected.

3) a resistance to the notion of the becoming a ‘transfer union’, in which tax revenues flow from the richer core to the poorer periphery.

4) a rejection of the idea of a common Eurozone government bond, which would entail members becoming liable for each other’s debts.

5) insistence on private sector involvement (PSI) in the restructuring of Greek public debt. The proposal that private holdings should be written down by 50% (while leaving official holdings unimpaired) damaged investors’ perceptions of all Eurozone sovereign debt.

6) objection to sanction the European Central Bank (ECB) acting as ‘lender of last resort’ to Eurozone governments. The fear is that such ‘debt monetisation’ would both create moral hazard by weakening the incentives for governments taking the necessary actions to reduce their debts and pose long-term inflation risks. The Bundesbank, supporting this position, has argued that the ECB’s securities market programme (SMP) to buy peripheral government debt should be limited and temporary.

7) support for the ECB sticking to its anti-inflation mandate, which was manifest in its support for its decision to raise its refinancing rate from 1.0% to 1.5% earlier this year. With headline inflation remaining embarrassingly high at 3% the ECB only grudgingly agreed to cut interest rates to 1.25% at its meeting on 3 November, despite manifest signs of a sharp slowdown in economic growth.

Please register on to view futures trading content such as post attachment(s), image(s), and screenshot(s).

With the core creditors in the driving seat, the net effect of this has been a powerfully contractionary fiscal and monetary stance across that has pushed the Eurozone into the deleveraging doom loop pictured above (Fig 4). Far from instilling confidence, fiscal austerity has led to a downturn in growth, now in the core as well as the periphery, raising further doubts about fiscal solvency and so driving up bond yields further.

This is not to say that German policy-makers are unaware of the need for economic growth. Aside from the so far abortive attempts to restore confidence through fiscal austerity, they point to the need for supply-side and governance reforms. On this score, there is near-universal agreement. The failure of peripheral economies both to liberalise their labour and product markets and to tackle government inefficiency and corruption has certainly weighed on their competitiveness and performance.

But, as Angela Merkel herself is prone to say, supply-side reforms are not a quick fix. Implementation is politically challenging, and the benefits take years to come through. Unfortunately, with austerity biting harder and faster than reform, the financial markets are not prepared to wait for years.

So the paradox of Merkelism is that the core countries’ attempts to limit their exposure have served to increase it. A cautious step-by-step approach to fiscal integration designed to put the euro on a surer footing has so far served to undermine it. With the peripherals increasingly confronted with the prospect of long term austerity, exiting EMU becomes correspondingly more appealing.

And yet the media, and every hopeful long-only manager in the world, is talking up the 'Grand Bargain' that is about to be struck this week to save the Euro. ECB to provide more support, a super-sized EFSF, a common Euro-bond, all in return for tougher (and potentially enforceable) fiscal rules. Of course, all 17 nations will jump at the chance and ratify instantly...while many assume this is the holy grail-like case, we suspect any relief will be short-lived since not only will the process likely be too long-winded (and leave too much uncertainty for an increasingly risk-averse and career-risk-anxious buy-side), fiscal solvency will take years to restore and is for surer a recipe for slow, stagnating growth (at best).

More on ZeroHedge...

Reply to share your thoughts on this current event.


futures io > > > > The Paradox Of Merkelism And ING's Not-So Grand Bargain

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

Wyckoff Hunting for Great Risk/Reward Ratio w/Gary Fullett

Elite only

Digging into the Details of iSystems w/Stage 5 & iSystems

Jun 5

Similar Threads
Thread Thread Starter Forum Replies Last Post
Europe's Grand Plan - 3 Strikes And You're All In Quick Summary News and Current Events 0 November 29th, 2011 01:50 PM
Hugh Hendry Channels Irony And Paradox In His Latest Financial Outlook Quick Summary News and Current Events 0 November 3rd, 2011 06:50 PM
Marking The 'Grand Bargain' To Market, One Year On Quick Summary News and Current Events 0 October 31st, 2011 02:30 PM
Sync-ing functionality - views? drolles NinjaTrader Programming 1 February 7th, 2011 06:27 PM
ING Direct Black Friday, get $121 free Big Mike Off-Topic 0 November 27th, 2009 03:13 PM

All times are GMT -4. The time now is 02:48 PM.

Copyright © 2018 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432,
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2018-05-23 in 0.08 seconds with 19 queries on phoenix via your IP