I’ve been very clear about my position on Europe for the last year. Further integration can work and European leaders should seek to move towards completing their flawed monetary union so as to rectify the trade imbalance at the root of this crisis. This position hasn’t been well received for many reasons, but it’s now looking increasingly popular. After last week’s turmoil and what appeared like increasing defection talk, European leaders are clearly working on some sort of plan that will lead to further integration which could pave the way for further ECB action and eventually a completion of the EMU in the form of E-bonds and ultimately a central treasury.
The latest reports come from several sources. Welt online is reporting that the Bundesbank is increasingly open to intervention:
The Bundesbank no longer rules out common European bonds – so-called Euro-bonds – but not immediately. The prerequisite, however, is closer financial integration of the euro countries. “This means joint control over the budgets of the member countries, including pass-through rights, individual countries should violate the agreed rules,” said Bundesbank President Jens Weidmann of the “Berliner Zeitung”.
Whether Eurobonds would be introduced, should decide the policy. “You’d be well advised, however, only at the end of an integration process to think about it,” said Bundesbank chief.
Reuters and the WSJ are reporting similar rumors about further integration (see here and here). The timeline here is for the December 9th summit so it wouldn’t be shocking to see a face ripper rally in equities in the coming weeks leading up to that meeting. There are A LOT of investors caught flat footed right now betting on the end of the world scenario. Remember, this is the global government put at work. Getting in front of this via short positions has been the equivalent of stepping in front of a bullet train.
But more importantly, we should applaud Europe for beginning to acknowledge the depth of their problems and taking the necessary steps to follow-thru on fixing the problems. Let’s hope they actually take firm action in the weeks ahead. The global economy literally hangs in the balance. A bazooka is required and markets will not wait long for EMU leaders to act. I’ve been waiting for a great European leader to step forward, take control of this environment and eliminate this unnecessary solvency crisis. To European leaders, I say – be bold, be proactive, be leaders. The entire world is relying on you.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.