Angel Merkel is quite possibly the most powerful person in the world right now. Her actions have the power solve Europe’s greatest crisis, or send the continent into a deep recession. The European Crisis is the most significant event, or long term trend, affecting the market. Whichever of its individual events is in the news at any minute effects every decision made by large traders.
In many ways, Merkel’s position today mirrors the position Ben Bernanke faced as the financial crisis took hold of the world in 2008. Though he made unpopular decisions and backed even more unpopular ones, Bernanke’s forethought saved the economy.
In his first-quarter letter to investors of Greenlight Capital, David Einhorn lashed out at regulators. He claimed that the market is "fractured and possibly in the process of breaking completely." Q1 2021 hedge fund letters, conferences and more Einhorn claimed that many market participants and policymakers have effectively succeeded in "defunding the regulators." He pointed Read More
Several separate actions by Bernanke were pivotal in allowing the American economy to absorb the shock much more easily, though some of those were incredibly unpopular among politicians and the public.
The most unpopular both politically and publicly, of the actions taken by Bernanke was his support for the Troubled Asset Relief Program, TARP. He was instrumental, along with Hank Paulson, in designing the program and getting it passed.
That was the mother of unpopular legislation. The bailout of the financial institutions at a time when normal Americans were losing jobs was not an easy decision to make. Getting the votes to pass it from Congress caused friction in Washington and made Bernanke’s name vilified around the country. As Roger Lowenstein recently stated “The left hates him. The right hates him even more. But Ben Bernanke saved the economy—and has navigated masterfully through the most trying of times.”
TARP has been quite massive success. Most of the banks have repaid their loans with interest. More is on the way as AIG aims to shed assets in order to pay back what it owes. The legislation stabilized America’s financial institutions at a time when they most needed it.
Ben Bernanke was not a politician. He did not suffer the same fate those unpopular decisions would have bestowed on Bernanke had he been one. Angela Merkel is a politician and is vulnerable to thinking like one. This much is true.
So far the crisis has been dealt with in response to these smaller crises rather than the overall picture. Only two moves have been made so far that have tried to reassure the markets on all of the countries involved. Those are the ongoing ratification of the European Fiscal Compact, and the creation of the European Stability Fund.
Those moves are not enough. To shore up a fully functioning financial system, Europe needs to create a fully functioning monetary system. The single currency is replete with weaknesses that the European economy needs fixed before it can recover. Without an internal return to stability, Europe can only hope and pray of escaping a disaster.
Europe needs its monetary system to be drawn together into a whole. That means currency, which it has already managed, some form of fiscal control, which it is actively considering, and unity of debt which it has been constantly avoiding.
Eurobonds are needed to address Europe’s problems as a whole. It would reduce borrowing costs for the smaller European nations and create a system more analogous to the United States than the current Frankenstein.
Angela Merkel is the most effective and powerful official in Europe. She leads a country which is still extremely stable and economically sound despite being just over twenty years in its current form. Germany has saved Europe repeatedly during this crisis, and it must be considered that if there were no Germany Europe would have sunk long ago in the heady days of 2011.
Merkel needs to do what is unpopular. She has been doing it since the debt crisis began. Germans are not happy to subsidize the lifestyles of their fellow Europeans. Eurobonds are deeply unpopular because it means throwing in Germany’s lot with Europe at a time when Europe seems ready to give up.
79 per cent of Germans opposed the instrument in a recent poll. Merkel says it removes the pressure to reform in the problem countries. The European Union has never had problems enforcing legislation. Of all environmental law currently enforced, most of it is European.
Angela Merkel needs to risk her position in order to save the European Union. She needs to come to the table discussing Eurobonds just like when Hank Paulson and Ben Bernanke worked together to save the US economy. She needs to lobby for their passage and do it as quickly and as easily as possible.
Eurobonds actual effect will not be instant, but their effect on confidence will be. The instrument seems to be the only surmountable way out of Europes current crisis, and a break from market pressures will give the countries of the Eurozone time to concentrate on what’s necessary, and that is growth.