Friday, 6 July 2012
"Leaving the Euro - My big fat Greek Divorce”
"Markets fall on European Debt Worries”
"European stocks and the euro rose overnight on prospects that central banks would act to boost economies.”
Source: Reuters, Bloomberg, FT, etc etc…..
Markets falling, rising overnight, uncertainty, crisis, speculations ...
Let's take a step back and question the European debt crisis and who is benefiting from these fluctuations in the market place. During various crisis central players have introduced new acts and legislation that could have not otherwise been done so unless there's a crisis, panic, defaults, downgraded ratings..
Speaking of downgrade, the European Central Bank (ECB) is not just a bank anymore, but also a credit rater! ECB will set the value of sovereign bonds and the collateral that needs to be put up by borrowers. The ECB will basically rely upon the bank's own internal assessment which will consequently make it easier for other European countries as it eases the collateral requirements for debt they need to put up.
The same situation occurred back in 2011 when the leading rating agency - S&P downgraded U.S debt and surprise, surprise: The White House publicly downplayed and objected the lowering of rating from stable to negative.
What's the goal of the central players? One arena – one fiscal system – one currency. Utopia for controlling the money supply (sound like the Federal Reserve of the United States of America?)
Perfect opportunity to centralize control even further in the Eurozone: a crisis : Greece on the verge of default, Spain, Italy, Portugal struggling and a few days ago Cyprus asking for European help to recapitalize its second-largest bank. The European Stability Mechanism (ESM) which is the euro zone's bailout fund, will now be allowed to inject capital directly into banks, not just national governments, once again emphasizing the move towards a tighter centralized control.
This strengthened oversight and closer economic union will seem essential and very soon the only option to “save” Europe.
Conclusion : There will be no break up of the Euro...As a matter of fact, quite the opposite : a more tightly controlled union.
Gold, being a safe haven will continue to be in demand given the newly cut interest rate by 25 basis points to 0.75 and the negative real interest rate environment which major economies are operating under.