Wednesday, December 7, 2011

The ghosts of eurozone solutions (or lack thereof) haunt the markets

The quotes out of Europe continue to rapidly swing financial markets. The mere mention of a solution that may or may not see the light of day, or a comment about not using a solution that may not even be on the table to begin with creates market reactions that are often violent.
Bloomberg: Germany rejected proposals to combine the current and permanent euro-area rescue funds as Chancellor Angela Merkel’s government said divisions may prevent agreement on a debt-crisis strategy among all 27 European Union states this week.
The fact that Germany is not willing to combine the two "rescue" funds EFSF and ESM was enough to not only widen Spanish bond spreads (reversing Monday's tightening), but to move equity markets around the world.

Spain 5yr spread to Germany (Bloomberg)

Again, some form of a solution has been priced in, and the markets will react violently to a disappointment - real or not.
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