Mike Shedlock

Using even stronger language, Merkel Says She’ll Resist Pressure for Euro Bonds 

German Chancellor Angela Merkel attempted to shut the door on common euro-area bonds as a means to solve the debt crisis, saying that she won’t let financial markets dictate policy. 

Joint euro bonds would require European Union treaty changes that would “take years” and might run afoul of Germany’s constitution, Merkel said today. While common borrowing might arrive at some point in the “distant future,” bringing in euro bonds at this time would further undermine economic stability and so they “are not the answer right now.” 

“At this time -- we’re in a dramatic crisis -- euro bonds are precisely the wrong answer,” Merkel said in an interview with ZDF television from the chancellery in Berlin. “They lead us into a debt union, not a stability union. Each country has to take its own steps to reduce its debt.” 

Merkel has stepped up her opposition to euro bonds since returning from her summer vacation last week, making resistance to common European borrowing a campaign theme of Sept. 4 elections in her home state of Mecklenburg-Western Pomerania. Investor calls for euro bonds intensified last week as concerns about the debt crisis and a stuttering global economy drove European stocks to their lowest in more than two years. 

“Politicians can’t and won’t simply run after the markets,” Merkel said in the interview, her first since returning from a three-week summer break. “The markets want to force us to do certain things. That we won’t do. Politicians have to make sure that we’re unassailable, that we can make policy for the people.” 

EU President Herman Van Rompuy sided with Germany and France yesterday, ruling out issuing common bonds as a cure for the debt crisis at least until European economies and budgets are better aligned. 

With three countries drawing financial aid and national debts ranging from 6.6 percent of gross domestic product in Estonia to 142.8 percent in Greece, this is the wrong time to set up a single borrowing agency, Van Rompuy said in an interview on Belgium’s RTBF radio. 

Merkel, who said that she’s confident of a majority to pass the changes in parliament, called for the focus of Europe’s crisis-fighting strategy to remain on tackling debt. Decades of deficit spending in euro-area countries has turned the region into a “debt union” that requires each country to slash debt levels, she said. 

“This is an arduous, difficult path that can’t be solved in one fell swoop, for instance with euro bonds,” she said.

The Eurobond idea is finished. The EU and the market is going to have to deal with it, and the market has been viewing Eurobonds as a savior. I do not care for Eurobonds either, yet the odds of an EU breakup have just increased.

Please consider The imperial Couple by Peter Schrank a freelance cartoonist.



Nicolas Sarkozy and Angela Merkel's proposals for economic government in the eurozone have failed to reassure the markets.

Inquiring minds are looking at a chart of Commerzbank for clues about the health of the bank, if not the entire banking system. 

CBK.DE - Commerzbank Weekly 

 

A friend "JMC" writes ...

Hello Mish 

In 2009 the German Government put 10 billion Euros into Commerzbank to keep it alive. Its market cap is now far less than the government (taxpayers) put in.
Flashback January 9 2009: German government injects €10bn into Commerzbank
The German government has stepped in to salvage a multibillion-euro merger between two of the country's largest banks, Commerzbank and Dresdner Bank, with a €10bn (£9bn) cash injection. 

The announcement, in effect a partial nationalisation of the combined group, came after several days of tense negotiations between executives from the two banks and state officials. "The government just couldn't afford to let this deal fail," one insider said.
Yahoo!Finance now cites CBK.DE market cap as 9.75 Billion. But that is as of June 30, when share prices were 3.18 EU. Now share prices are 1.91 EU so you can lop off about 40% of that market cap, which means after an injection of 10 billion EU, the bank is now worth approximately 5.85 billion EU. 

Last week an unidentified bank needed to tap the ECB for $500 million in emergency funds at a penalty rate, something that only happens when liquidity dries up and banks are distrustful of lending to each other, even overnight. 

"JMC" wonders if Commerzbank is the bank needing emergency funds. I don't know because the ECB refuses to say. However, note the result. All banks are suspect because the ECB won't say. Actually, all banks are suspect anyway, but hiding problems acts to enhance large and growing distrust. 

I have to laugh at the PE of Commerzbank, listed at 2.2. With the collapse in share price, its PE is now under two. This is what's known as a "value trap". Share prices seem attractive at a PE of 10, then 8, then 6, then 4, then 2. 

On June 20, I discussed "value traps" in 
Value Traps Galore (Including Financials and Berkshire); Dead Money for a Decade

In retrospect, many financials may head to zero. If so, it will not be dead money for a decade, but rather just pain dead money. 

Mike "Mish" Shedlock 
http://globaleconomicanalysis.blogspot.com
 

 

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Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.