Merkel: Not Sure The European Project (Or Euro) Will Work...

Merkel: Not Sure The European Project (Or Euro) Will Work…

(DE) German Chancellor Merkel reiterated her view of no burden sharing without oversight in Euro Area and cautioned that she could not be sure European project will work. Germany does well only if its neighboring states perform well.

(EU) ECB’s Asmussen commented that the German Constitutional Court approval of ESM was key to Euro stability and a negative court ruling would mean that the ESM had failed. He stressed that the EMU was at a cross road and much achieve deeper integration.

(EU) The Telegraph’s Ambrose Evans-Pritchard reported that some fund managers are starting to have doubts about Germany’s ability to insulate itself from the EU debt crisis. A net of 32 money managers expect “trouble” in Germany, amid concerns about Bundesbank’s exposure to the debt crisis.

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(EU) IMF: Urges ECB to take on a bigger role in fighting the euro zone debt crisis, needs to launch sizable QE programs

ECB could be given full lender-of-last-resort and financial stability functions.
Could undertake “sizable” sovereign bond purchases.
More QE would likely contribute to lower yields in already ‘low yield’ countries.
Headline inflation in EMU expected well below 2% in 2013-2014, EMU growth trend to be 0.75% over the medium term.

How to interpret these headlines?

More troubles are brewing in Europe today followed by comments from Germany. First with Merkel expressing her doubts on the “European Project”, which is a shocker to the market as right now the market considers Germany as the core Europe, and if the core member is having doubts about the Euro, it really doesn’t inspire confidence for the rest of the world. Furthermore, the issue of ESM and German Constitutional Court is going to add more selling pressure for the Euro, as when traders are in doubt, they generally stay out.

Considering IMF’s comments today followed by their Global GDP Forecasts earlier this week, I believe the situation is getting increasingly uncertain in Europe. We are in the eye of the storm for the time being, with potential for further weakness ahead, whether from an unscheduled ratings action by one of the 3 rating agencies on Spain, or more drama out of Greece, or just more careless (or carefully structured) comments out of Germany or ECB, marktet will respond by punishing the Euro further… All in all I see further downside in the Euro, as there are practically no justifiable reasons to buy the Euro except to cover your shorts.

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