A Sea Of Red

If an ECB in QE mode, €60 billion in cash, €440 billion from a pooled EMU effort and €220 billion from the IMF only lasts a week, then I’d humbly submit that we have a problem.

(Screenshot from Bloomberg, click for better viewing)

It is difficult to say whether it was former Fed chairman Volcker’s comment on Euro breakup which set alight the initial fire, but what is certain is that it does not seem that markets have calmed down. And they shouldn’t be calm. The package may be impressive, but the growth prospects of the Eurozone have now been moved down more than a couple of nudges. And still there is a looming and large risk that debt restructuring will come eventually (I believe so, for example).

As ever, I should point out that, in my world, slumping stocks do not constitute a problem as such. But volatility is rising and, with it, risks of a veritable rout against which it is difficult to see where policy makers will find the tools prevent a sea of red turning into severe bloodletting.

Have a nice weekend, by the way; I am sure things will be better on Monday… well, I am keeping my fingers crossed at least.

  1. Bob_in_MA says

    Ironically, doesn’t each 1% fall in the Euro make it that much more likely to survive?

    This is going to nail China exporters because the EU is now their biggest customer and their fixed to the wrong currency.

    I think this has moved from being a currency/sovereign debt issue to one of growth.

  2. J. Powers says

    Seriously, who actually believes that these debts will be repaid? No matter how sweet the deal now, _something_ is going to happen in the near future that makes it at least a bit more difficult for someone to make payments. Most everyone’s stretched to his limit already; there’s no slack at all. I wouldn’t give someone $20 under these conditions and expect to get it all back–if I got anything back at all.

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