The last feast?

link to italian version The loan to Spain, which I in my humble opinion I dared to define as a flash in the pan, has provoked positive effects…for an entire morning! Then, the question started to be “Who’s next?” – well, PIIGS are five…four have already applied for help…there’s just one missing! Then, the performance index of Milan went from a strong and “euphoric” +2% to a sad -3% at the closing of the business day. And today, history repeating.

Let’s say it’d possible for the European leaders to reach sort of an agreement of June 28th on a greater and improved European union. We have to take into account that it won’t be possible to realize a political, fiscal and economic European Union “right now”: the EZ is not homogeneous, and we’re seeing increasing divergences – not convergences.

We can in any case imagine that the meeting will draw a road map stating a strong and shared effort toward the United States of Europe in, let’s say, 2025. The negotiations include the commitment of the member states in respecting a series of binding parameters. A possible agreement would include:

  • project bond on single infrastructure initiatives shared from 2013
  • cross guarantee on bank deposits and EBA to replace national control entities within 2014
  • every member to reach break-even within 2015
  • introduction of EuroBond for a share of the debt up to 60% of GDP (the exceeding share would still be national debt) in 2017
  • debt/GDP under 100% within 2018
  • centralized fiscal collection made by a European Finance Minister in 2019
  • debt/GDP under 80% in 2023
  • final introduction of the EuroBond – in total replacement of national debt – in 2024
  • creation of the United States of Europe, with termination of National Governments in 2025
  • commitment to reach a debt/GDP at 60% within 2035

This road map would give the necessary guarantees of protection to the poor and of adjustment to the rich. And don’t forget there would be plenty of room – in the calendar and in the negotiations – to introduce German as a mandatory language at school in 2016

Any flip side? Uhm…this kind of programme would imply sort of compulsory political administration of the member States in the next 10 years and over. But this is supposed to be a progressive abdication in favour of a shared European subject.

If there was a shared and clear target, even if in the long term, the flag of speculation would be less exposed to winds – in fact we live in a situation in which the events of the short term, when free from a connection with the future, have a heavy influence on the long term effects. For instance (1) the easy and rightful speculation on Greek bonds creates the hypothesis of a fracture in the EZ and (2) when the hypothesis takes place, someone else is tempted to consider it as a real scenario (3) And this is a frightful scenario which creates the will to walk away from weak countries…

vice versa, if there was a clear scenario of a future shared target, short term dynamics would be influenced by this shared effort. A GDP decrease in one of the member states would be perceived as a problem which will be faced by the entire Union – and not as a step towards disaggregation, for instance. If that meeting created a solid and trustworthy statement, the room of the feast depicted in the previous picture would be like the following one:

And there’s a quite simple reason: the volatility of the markets is a huge occasion to obtain profits. It is possible to obtain more in a market which first loses 10% then rises again (having the right skills for this operations), than in a boring market with low fluctuation. And if a “little saver” loses something…well…it’d just be a collateral damage. The main commercial banks have filed for the last three years balance sheet with profits from trading higher than profits from operations. This is a quite wealthy jackpot and nobody would decline – but it will be necessary to give it up if the flag we were talking about wasn’t allowed to wave free.

Then…what shall we do?

There are just 16 days ahead (#TICTACTICTAC) before the arrival of a response from the European summit. If I was a mean and despicable speculator trying to maximise my profits, I’d have no doubts: I’d try to get a feast in the next days (that is, -3% yesterday and -2% so far today). Before being obliged to get on a diet. Vice versa, if there isn’t a deal on the 28th, the path is open for a possible indigestion…

Related Posts with Thumbnails
PDF Download    Invia l'articolo in formato PDF   

About bimboalieno

Operatore finanziario professionale dal 1998; ha collaborato con diverse banche italiane ed estere. Si può scoprire dell'altro cliccando qui. Oggi é responsabile di un centro di Private Banking. Professional financial trader since 1998; he has worked with several Italian and foreign banks. You can learn more here. Bimboalieno is currently in charge of a Private Banking centre.