25th December 2011: 2012 Will Be A Defining Year For The “Confederative States Of Europe”

 

The European Union

Quote of the Day:

That’s just a terrifying prospect in my view because then you’re just strengthening this banking-sovereign-debt-feedback loop.

Megan Greene – Roubini Global Economics

 

Macro Overview

Big Year Ahead For Europe

• Merry Christmas!
• 2012 will be, quite simply, a monumental year for Europe. I’m going to be away over the next few days but I just want to introduce you to a great interview with CMC and Roubini Global Economics’ Megan Greene.
• I agree with much of what is said and, if anything, the progression of the conversation highlights just how complicated and desperate the situation in Europe has become. However, I’m not quite as pessimistic on the European mess as they are. Megan Greene effectively dismisses Germany’s appetite for financially backstopping so-called rogue states ad infinitum to near-zero. Believe it or not, I think the possibility of this happening is distinctly non-zero (although I admit it is still a long-shot).
• Let me put it in the form of a question. Albeit at glacial pace, for the past 50 years, the union of European only been moving in one direction: towards greater political and fiscal union. How would this trajectory be possible without both a political and societal/cultural appetite for it? I feel there is a certain sense of inevitability towards Germany’s call for treaty change and 2011 has set the stage for 2012 to take one giant leap towards fiscal and political union in the World’s largest continent, economically speaking.
• Given the history of intent, I cannot help feeling that there are still potentially viable political solutions to the challenges Europe faces – if only politicians can strike the right chords (yes, that’s a BIG IF, I know). For example, German taxpayers may be willing to make significant direct contributions (looks like they may already be committed to contributing indirectly via a newly inflationary ECB, under Draghi) towards bailing out fiscally rogue states provided they get something significant in return. There are many ways this can be accomplished. Loyal readers of mine know that one of solution I suggested could manifest in a political power-transfer from the, fiscally imprudent periphery to the, fiscally prudent, core (aka a calibrated loss of sovereignty by the offending states). Indeed, these were ideas I was talking about months before Treaty Change was the buzz-word of the month.
• Enough from me, watch this well-reasoned video between CMC and Roubini Economics… and have a great New Year!

 

Market Overview

European Banking System Still Fragile

• I’m not going into too much detail at this, the eleventh hour of the year. I’ll just show the LIBOR – OIS spread for the Euro – courtesy of Bloomberg (see Chart of the Day).

 

Chart of the Day

EURO LIBOR-OIS (Source: Bloomberg)

 

Events

Macro Events:

Update:

• Nothing Significant

Alerts:

• Irish GDP this week
• Japanese Inflation Numbers out this week
• Japanese Industrial Production Numbers out this week
• US Consumer Confidence Numbers out this week

 

Corporate Events:

Results:

• Nothing Significant

Dividends:

• Deere [DE], Honda [7267], Kraft [KFT],

 

Reading, Links:

Nothing Significant