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  Global Views
Clem Chambers' Column
As Euro Crisis Rises to Finale, Economic and Technical Brilliance from Leadership Is Needed
By Clem Chambers
Senior Markets Correspondent
German Chancellor Angela Merkel and French President Nicolas Sarkozy

When the stock market’s gyrating it’s easy to believe it cares only about today. In fact, the market has little interest in the world as it is today; it looks a year ahead.

A natural disaster affects stock prices immediately. Yet it’s not the immediate impact of the disaster that’s priced into the index. It’s the likely long-term effects, discounted back to today.

Markets rallied strongly around the globe last week as Europe - or rather Germany and France - promised a solution to the euro crisis, with concrete measures to be announced by the end of October.

It was a promise that said, “Relax, the problem of Greece and contagion in Italy and Spain is in principle sorted .We’ll announce the details in a couple of weeks.”

The markets interpreted this to mean there is an agreement ; Europe will get its German bail-out; recession and depression will not occur; and economic vitality will surge – in short, all the problems of this summer will be forgotten in a year’s time.

Yet this week the German finance minister Wolfgang Schauble told the world not to expect miracles by the end of the month, clearly contradicting last week’s Franco/German statement, and sending markets lurching yet again.

There are lots of flies in the ointment. What is the bail-out? Will the euro bail-out fund be grown to the 2+ trillion euros economists believe is needed ? Will the fix be some other inflationary trick? What if the proffered solution fails to impress? What exactly will it take to bail out over-leveraged countries with double deficits?

Another concern is whether the cure may, in fact, turn out to be another kind of economic poison. How do you bail out countries hooked on debt with systemic budget problems without creating high inflation, recession, social unrest or all three?

We will find out shortly. If Merkel and Sarkozy are bluffing to buy time, the market will crash and Europe’s game will be up.

Worryingly, but somewhat predictably, it appears there will be moves within Europe to try and increase control over EU members states budgets. For those in the Euro, the likelihood of such moves succeeding seems low - turkeys do not vote for Christmas. If something like this is included in the solution and is in anyway pivotal, markets will crash.

It appears that by the end of October, a real demonstration of political, economic and technical brilliance will need to be exhibited by the EU leadership to save the day.

That would equate to an almost complete turnaround of its performance so far.

It ‘s in everyone’s interest that German Chancellor Angela Merkel and French President Nicolas Sarkozy deliver the goods. Even if they do, the road ahead will be full of economic volatility and strife. Yet if Europe continues along its path of ossification and muddle, the outcome will be far worse.

The course of the next few years will be decided in the next few weeks.

Meanwhile, the way ahead for European banks is inextricably intertwined with the euro-crisis. Banks will take a lot of punishment from their holding of Euro debt, some of which they were practically forced to hold after the original credit crunch.

Sovereign bond haircuts, defaults by any other name, will slash bank solvency and it must be replaced somehow. Ironically governments - using local and transnational regulation, criticism and threat - have made it harder for banks to get more capital, while capital requirements have increased.

Adding to the problems of recapitalising the banks is each country’s individual terror of losing credit ratings through bank nationalisation. Throw in the ill-will built up by the media and politicians towards banking in general, and you can see the task ahead is a tough one.

The European Central Bank has so far been the device to support the banks. The once- independent institution has been used to pass the buck away from countries’ credit -worthiness and, once again, a giant fudge will be needed to sort out the situation.

The Euro crisis is rising to a finale. We all hope it is solved by a whimper not a bang, but if there is a crash there will be no end of amazing buying opportunities for the investor.

That’s the small silver lining to the clouds hanging over the skies of the global economy

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Clem Chambers serves as Senior Market Correspondent for The Seoul Times. He has been writing investment columns for a number of international media including Wired Magazine, the Daily Mail, the Daily Telegraph, the Daily Express, the Scotsman, and Forbes. He can be reached at His website is






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