Europe is facing a make-or-break month. Its economy is sinking and the debt crisis that has hit some of its members threatens global economic disaster. Now its central bank is poised to hold off from helping — in the hope that Europe's divided leaders will be pushed into action.
Steen Jakobsen, chief economist of Saxo Bank in Denmark, asks via email: "Is Merkel Misinterpreted? Will the FOMC Move Decisively?"
The misunderstood Chancellor.
The market clearly believes Ms. Merkel will, ultimately, not withstand the pressure - and she will end up collateralizing rising debt. I remain extremely skeptical. I even dusted off my school German to read Der Spiegel and Focus, two major German weeklies, which give you a very different perspective.
The ECB has held off purchasing sovereign debt bonds in Europe the past two weeks and the results were easily predictable. Yield on 10-Year Italian debt is back over 7%.
Italy 10-Year Government Bond Yield
MANY people have been linking to this Spiegel piece, on how the Germans are preparing for the possibility of a Greek default. It's a remarkable read. Consider:The rest of Europe is losing patience with Athens. And after 18 months of crisis in the country, there is still no improvement in sight. Key economic figures are worsening, and there are growing doubts over whether the Greek government truly understands how serious the situation is.
The European Central Bank eased investors' fears about Europe's financial crisis when it said in September that help was at hand for countries struggling with their debts. But the bank, which holds a monthly policy meeting Thursday, isn't likely to take further action anytime soon to help the 17 countries that use the euro with their ailing economies.
The market giveth, and the market taketh away.
In the final week of trading for 2010, gold and silver registered powerful “risk on” breakouts. Gold moved definitively to the upside from a short-term triangle pattern, and silver pushed above $30 per ounce.
Does Europe need more hedge funds? That was one of the more intriguing questions to come out of a one-day seminar on Europe's sovereign debt crisis I attended this week in Brussels.
The event was co-sponsored by the IMF and Bruegel, the respected European think tank, and it was held under the Chatham House Rule, which means I can't tell you who said what. But I can give you a few headlines.