First out of the gate this morning is a follow-up comment from a reader.
- I definitely agree with you, I think we need to look at facts and form our own decision.
Yup, and one has to read between the lines of the facts, which means having a broader understanding of how the world works. I have no finer example than Europe and how it is dealing with its fiscal and political problems.
European Union leaders advanced towards establishing a single banking supervisor for the euro zone, agreeing it would enter into force next year, opening the way for the bloc’s rescue fund to inject capital directly into ailing banks. French and EU officials said all 6,000 banks in the single currency area would gradually come under European Central Bank supervision by 2014. Creating an effective banking union, for which this deal was a first step, is regarded by the International Monetary Fund and market economists as a key component in overcoming the euro zone’s three-year-old debt crisis.
Yes, the above is fact, but so is the news that followed the EU’s forward-thinking decision.
Merkel raised new hurdles on the EU bank union. Merkel said it would take time for the new supervisor to be fully effective. She made clear that would not lead to the bloc’s European Stability Mechanism (ESM) rescue fund taking over liability from member states such as Spain for past bank rescues, and she posed extra conditions that some diplomats said seemed designed to ensure there will be no capital injections before next September’s German elections.
On the surface, this news appears to “challenge” the news about the EU’s fiscal and political step forward, but is it really news at all? Is there something to read between the digital lines?
German media dubbed European Union leaders’ agreement on a single European banking supervisor a “victory on points” for Angela Merkel, judging she had persuaded peers to proceed at a slower tempo.
If there is any news value in Merkel’s pronouncements, it is that she has elections coming in 2013 and needs political cover from a populace that is not happy with her necessary support for a tighter fiscal and political union. Thus, take the negative interpretation of her thoughts with a grain of salt because here is the reality.
Merkel confirmed that the ECB would eventually supervise all 6,000 banks in the euro zone. Merkel also advocated the creation of a European fund to invest in projects in member states, which she said could be fuelled by a financial transaction tax, which 11 euro zone countries have said they will adopt.
As a market player, here is what you need to know and consider about Europe and its problems. First, European economic stimulation is coming – it is inevitable. Second, if you are not looking for opportunity in Europe, you should be. It is ripe right now. Money is flowing back toward the continent, as the largest economy on the planet slowly but surely comes back together.
Spanish and Italian bond yields hit their lowest levels in over half a year on Friday after euro zone leaders firmed up plans for a common bank watchdog.
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