09/30/11 Amsterdam, Holland – “Germany Backs Rescue Fund,” the front page of today’s Financial Times declares. “Victory for Merkel on Euro Zone Aid,” adds the front page of today’s International Herald Tribune.
Good times, apparently, are here again…if the stories that followed these headlines are to be believed.
“The German parliament voted by an overwhelming majority in favor of measures to bolster the $597 billion eurozone rescue fund,” The Financial Times’ story began, “giving [the fund] new powers to buy bonds and recapitalize weak banks, in a move that lifted financial markets and boosted the euro.”
The Dow Jones Industrial Average celebrated the German vote with a 145-point rally. Today, the Dow is “uncelebrating” yesterday’s vote by falling — at this moment — exactly 145 points.
We’ve seen this movie once, if not a dozen times before. The plot goes something like this:
- Investors worry about Greece going bankrupt.
- Investors subsequently worry that a Greece bankruptcy would trigger a contagion that would doom other European nations, as well as several large European banks.
- Markets fall worldwide.
- Some hodgepodge of EU officials announces, approves or revises a bailout plan.
- Markets rally worldwide.
- Within a day or two, investors re-think their initial exuberance. Their optimism yields to doubt.
- Markets resume falling worldwide.
The German Bundestag’s approval of an enlarged bailout fund — as well as the preceding and ensuing stock market volatility — follow the script above, scene-for-scene, line-for-line.
But the real story for investors is no the movie we’ve already watched a dozen times, it is the live drama that’s now unfolding. The movie is merely a distraction from the drama — creating lots of volatility, but very little substance.
The unfolding drama is “Oedipus Rex,” with a financial twist.
Oedipus, as you may recall, was that unfortunate lad who, according to the Oracle at Delphi, would marry his mother and kill his father. Oedipus fled his homeland immediately. But in trying to escape his fate, he sealed it.
Angela Merkel, you are Oedipus…sort of.
If the Oracle at Delphi were still in the predictions business, she might prophesy that Greece will default and the euro will fail. And if so, Greece and the EU would immediately attempt to flee their fate. But like Oedipus, in fleeing their fate, they would seal it.
Greece might, for example, beg its rich neighbors in the north for a “short-term” loan. It might also enact austerity measures in exchange for even larger handouts.
The EU, in an effort to avoid its fate, might agree to ship billions of euros down to Greece to try to contain the threat of contagion. Further, the EU might agree to continue sending billions until there was no more money to send…or until Greece defaulted anyway.
The bailout funds — no matter how large they grow — will merely slow the march toward inevitability. The destination is certain; the timetable is variable.
Here in Europe, your editor has been conducting a week-long “Farewell Euro Tour.” From Amsterdam to Geneva to Venice and back to Amsterdam, your editor has been asking men and women on the streets what they think about the euro and about its chances for survival.
Generally speaking, support for “saving Greece” is tepid at best. While most folks voiced some version of, “Well, we should try to do something to save,” they also voiced some version of, “We liked our old currency better.”
We’ll detail our encounters next week, while also providing a few of the highlights we captured on video. For now, let it suffice to say that popular support for rescuing Greece appears to be waning, no matter how the Bundestag votes.
Eric Fry
for The Daily Reckoning
Eric Fry
Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research — institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
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“ship billions of euros down to Greece to try to contain the threat of contagion.”
sending more money to greece will not contain contagion. it will expand and reinforce it when it finally happens.
and the money is not being sent to greece. this talk of bailing out “greece” is misleading. the money may pass through greece but the bailouts are for the bank ceo paychecks and bonuses and the bank infestors.
hhhm so this author fall in the camp of thesis where euro wont survive,the other camp antithesis which says it will survive.now i am waiting how the usury takers will come up with synthesis,it will be interesting.some how the real wealth of this world will flow into the hands of top 5%,no wonder all the great religions ban usury[interest taking].
everything that comes out of a mouth of an American or English wrt Europe is complete BS. Europeans know that is war raged against them by anglo-saxons and it is aimed to hide London and Washington own financial predicament and retain their control of the world. UK has a zombie economy and the US is flirting with a Chinese symdrom. When EU has completed its reforms including a new financial framework including a tax on financial transactions etc. then as we move towards 2012-13 the Euro will end the US Dollar hegemony with the helps of the BRICS. Godd luck suckers!!!
Germany´s export economy loves the weak euro and the government loves the safe- haven 10yr borrowing rates. These two positive influences on the german economy come in part from Greece (and others) being in such horrible financial shape. It´s a sick co-dependent relationship.
Stop crying.
Start buying.
The Great Recession is over.
LMAO
i have no idea where marquis gets his material but is doesn’t make much sense. sure the U.K. and the U.S.A. are in deep doo doo, but both can print money to spion out the game longer. neither are at tisk of a default. greece can neither print money nor can they avoid the certainty that they will not repay their debt without giving a load of banks a nice buzzcut. to call this US or UK propaganda is a bit silly.
the greek economy is rapidly being reduced to an iphone app – costing about $2.99. come on, we all know the default is only a matter of when. i say the EU bails them out one more time then it all blows up (before the end of 2011). italy is really not that far behind and the downturn from a greek default will knock the props out from under them.
Marquis is long on Greek bonds.