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Fiddling While Belgium Burns

August 14, 2012

If you haven’t checked the market, it’s been a quiet week so far.  I’ve had the opportunity to watch the market opening both days this week (and probably all of them, I’m on dog duty for the week), and the general comment has been that it’s mostly quiet since all of Europe is on vacation.  Ah, August…

Maybe it’s that there’s no market news, but the talking heads have been expressing concerns that the Euro is on its way out.  Spiegel Online (thanks to Hot Air) hit the same thing today.  Here’s the article summary:

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar’s structure isn’t in doubt.

Well, wonderful.  Actually, this isn’t all that new… it’s been a pretty consistent drumbeat through the last four months or so: the Euro won’t survive Greece, Spain, and Italy, and Germany will ensure that.

So first, I’m in the general camp that Germany (as a long-term view) would like to see a continued combined currency, as long as they can get the rest of Europe to think like Germany.  Check out the way the Germany is dictating terms to France, and you have a moral equivalent to a nice armistice treaty going on.  The advantage here is that Germany doesn’t have to bail out the rest of the continent.  It could just let the currency dissolve and then buy up the assets that are worth anything.  But that’s not a plan that leaves the continent as a business power, so right now it’s trying to hold things together on its terms.

My other comment is that the market appears to be holding fairly well given all the nervousness.  Could it be that the drivers of the market are being overly optimistic on any news in anticipation of the coming plunge?

The effect on America is going to be interesting.  I’m not sure that either guy who gets the presidency is going to look good if Europe does break up.  The financial implications will shake quite a bit of the market, and the reaction to shareholder panic will force companies to tighten belts and make cuts that won’t reflect well on political leadership.

I still hold hope for the Euro, mostly because Europe believes that a combined Europe is a stronger one.  We’ll see if it manages to keep convincing the very strong German nation that this is true.

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