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Kiron Sarkar
September 28, 2011
Hi there,
Greece passed legislation to impose the widely unpopular property tax
yesterday. Finland is expected to vote in favour of the changes to the
EFSF today, with Germany following up tomorrow. However, still don't
know how the Euro Zone will sort out Finland's requirement for
collateral - remember that one. The key player remains Germany. OK, so
Mrs Merkel gets the EFSF legislation passed tomorrow - with opposition
support. What next. The chances of leveraging up the EFSF are, at
present, close to zero. Oops, well, we will have the resumption of the
Euro zone/European banks crisis. Yep. The German Finance Minister called
Brussels "stupid" and, in none to subtle terms, suggested that Geithner
get lost. He is (rightly) concerned about the impact of a leveraged EFSF
on the credit ratings of the 6 Euro Zone AAA rated countries - in
particular France (though he did not mention France). As you know, I
believe that leveraging up the EFSF will be deemed unconstitutional by
the German Constitutional Court - Germany will need to have a referendum
if they want to pursue this measure.
The Greek PM, in an exercise of effortless insincerity, told German
businessmen that Greece will take all the measures necessary to get
their finances in order. Off course they wont for any length of time.
However, Greece needs the money and, in addition, realises that if they
are out of the Euro, things get really rough for them. As a result they
will promise everything. The only conclusion is that Greece defaults
(quite possibly even this year) and is then drip fed aid, subject to
them delivering on pre determined fiscal targets.
Will the markets attack the rest of the Euro Zone - eg Spain, Italy,
France etc, etc. Yep, it certainly will. I believe its pretty close to
odds on that they will be further downgrades of Euro Zone countries,
including, in due course, France. Cant see how France maintains its AAA
rating for much longer.
Interest rate cuts by the ECB. Well clearly yes, even if that moron
Trichet does not act next month. More liquidity measures - off course.
However, the bottom line is that things are going to get worse. At some
stage there will be unsterilised QE, but that's a huge move for the Euro
Zone, though, quite frankly, I see no alternative.
Sorry.
As reported, sold out yesterday and added some EM shorts.
Short blog. Will be away from my desk for a few days, so no blogs you
lucky people. European markets (amazingly) not performing too badly this
morning.
Have fun
Best
Kiron
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