Monday, June 20, 2011

Euro Standoff: Not Good News

U.S. stocks are up this morning, after a confusing and contradictory hash of press releases from European governments, the IMF and private research groups. Germany has been calling for private bondholders to take their haircuts, for periphery governments to implement meaningful austerity, and finally for Germany to lead a bailout financed by the sovereign Euro-North and the IMF. Instead, nothing of any consequence happened this weekend.

The Centre for Economics and Business Research Ltd. forecasts the demise of the Eurozone by 2013. The IMF communiques chiding Germany's conditions for further bailouts seem wildly out of touch; they also speak to the value of having a non-European in charge of the Fund as soon as possible. The Greek establishment realizes that it many ways, it holds the cards simply because it owes so much to so many; why would investors expect meaningful action from them in light of the IMF's finding fault with the Euro-North countries for not being more accommodating?

It's virtually impossible to forecast the trajectory of a meltdown in the Euro-zone. All in all, how could it be good for the world economy and for stocks? In a perverse way, U.S. Treasuries could benefit again as a safe haven, the least bad of a lot of worse alternatives.

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