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Week Ahead: the paradox of ‘Merkelism’

Could the recent market rally point to a naïve hope that the failure of eurozone leaders to act promptly and decisively must end soon?

Week Ahead: the paradox of ‘Merkelism’

The furious rally in ‘risk assets’ in recent days signals that markets believe policymakers may finally be ready to clean up the euro-mess.

Of course, it could also point to a naïve hope that the repeated failure of eurozone leaders to act promptly and decisively must end at some point. That's what ING brands the paradox of ‘Merkelism’.

The Dutch bank says that even though Angela Merkel, German chancellor, insists that ‘if the euro fails, then Europe fails’, she remains reluctant to sanction the dramatic measures that many see as essential to prevent the monetary union from fracturing.

In a note published on Thursday, Mark Cliffe, chief economist at ING, warns that the paradox is that attempts by the bloc’s rich nations, led by Germany, to limit their exposure to the crisis in fact only increase it.

Merkel on Friday stressed her determination to forge a legally enforceable ‘fiscal union’ for the eurozone, a day after Mario Draghi, the European Central Bank's president, hinted that such a step could pave the way for more forceful ECB action.

These comments indicate that a solution to the debt woes is taking shape, ahead of the fateful European leaders’ summit next Friday, which caps a period EU commissioner Olli Rehn called the ‘10 days to complete and conclude’ the union’s crisis response.

Cliffe writes that the eurozone is indeed likely survive, courtesy of a ‘grand bargain’ that exchanges tighter fiscal discipline and economic reform for German support of ECB action and a commitment to launch a jointly guaranteed ‘eurobond’.

So will investors be able say goodbye to their euro-inspired anxieties, possibly as soon as next week?

Cliffe says markets would doubtless greet the move with relief – but that relief could again prove short-lived. ‘It might soon become clear that the thrust of eurozone economic policy will remain austere and economic growth prospects subdued,’ he says.

‘Europe is already paying a price for the failure to quell doubts about the sustainability of [European Monetary Union]. It is likely continue to do so.’

Central banks to meet

Investors will also focus on key central bank decisions next week, as well as a string of company news.

Britain is to publish data on its dominant services sector on Monday, as is the United States later in the day, while TUI Travel (TT.L) is set to publish earnings in the wake of the near-collapse of rival Thomas Cook (TCG.L). Aberdeen Asset Management (ADN.L) is also to report earnings.

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19 comments so far. Why not have your say?

an elder one

Dec 02, 2011 at 18:17

I have the feeling that many of us in the UK (ie. the man in the street; can't speak for the ruling class) would rather not see the Euro suceed if the consequence is a Europe governed by Germany with regulations affecting all aspects of our livelihood and quality of life emanating out of Brussels (or the Bundestag), continuing to increasingly screw us into the ground.

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Chart Trader

Dec 03, 2011 at 13:04

Doesn't seem that Germany has suffered by being ruled by the Germans, do you think that 'the man in the street' feels we cannot compete with the German equivalent ? Perhaps they work harder and don't gold plate the rules emanating from Brussels.

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Graham Barlow

Dec 03, 2011 at 16:10

Germany has a much smaller and streamlined Public Sector than Britain. They also put staff on short time as soon as a downturn looms. They do not expect their companies to act as Nannies to the work force. Here we are sending staff on lifting courses (1 day) at £50 each plus £20 for the certificate. Gold plating in Britain is a growth Industry invented by Blair/Brown and continued by this government. We literally have armies of superannuated officials admistrating a Pin, even the staff who have to participate usually say "Teaching your Grand Mother to suck eggs". IUntil we get out of this enterprise stiffling attitude we will never catch up with the Germans. Britain has now a large population who thinks work is an extension of College or School and is provided by the Government. They have no concept of enterprise, but expect ever larger salaries, index linked coupled with lower prices at the factory gates. When the minimum wage goes up ,you dont get a corresponding uplift in invoice prices. It is counter productive and anti employment.

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an elder one

Dec 03, 2011 at 19:28

I don't necessarily disagree with the foregoing and in particular commenting as a retired engineer - of the motor industry - find a lot to admire in the German approach to engineering in all its aspects, especially its educational provisions in that respect; but that is not the point. The UK does not need to be manipulated by a German Government, as though we were some puppet state of theirs.

I confess I know little of the German approach to the matter of human welfare, but suspect that it's not much different from here and Germany is not renowned for a lack of rules and regulations and law.

The big problem here in the UK is that our emphasis on finance has caused much of our engineering industry to dissipate by being priced out by the grotesque rewards to be aspired to in finance and a state education industry that seems to have forgotten the three Rs and the knowledge required to conduct the proper business of earning a living.

Due to that - a lack of prospect for profitable productive industry - we have acquired an oversized unsustainable inefficient public sector to absorb the otherwise unemployed citizens of our realm, with all its inevitable human instincts of appearing to be busy whilst doing very little of import.

It is the politicians who govern these things of course; they want power and pander therefore to the masses for their vote so fear to do much to change things; and they of course are also products of an educational system that engenders the status quo.

That said, perhaps we do need German rulers to put things straight, but not in my lifetime; there is still the matter of pride in ones national identity and its instinct to find its own solutions and way of life; which I reckon the 17 (is it) Euro countries are yet to discover.

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clive rowland

Dec 04, 2011 at 08:58

It is of course high time that the people of this country, from all walks of life,looked closely at our European neighbours and made up our collective minds that perhaps, just perhaps, that this is an opportunity for our nation to fulfill that long felt want for a rondevous with reality, .

The comments from preious authors as above would do for a few of the yardsticks for a change in regieme - for starters.

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Robert Court

Dec 04, 2011 at 09:09

Maybe the Army of pen pushers in the public sector would be better employed in natural monopolies such as a national railway system, Royal Mail, water, electricity and telephone services?

Whoops! They all got privatised and are so much better now, aren't they?

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Dimitrios Philippelis

Dec 04, 2011 at 09:44

The once upo a time Great Britain and now the U.K. had the guts to be the real Leader of all anti- nazi axis forces in Europe and had lead succeafully the whole struggle againsy Germans. Its W. Churchill was a man of high determination and great political calibre.

If paradox is defined as a statement that seems to be self-contradictory or a person who has contradictory qualities according to outward appearance and/or a thing that unites contradictory quality then the paradox's meaning goes to the third one where the Great Britain has nothing from its glorious past when the nazis were terrified by its presence.The past cannot be united with the present.

Is UK afraid of new nazis because some G.Soros, the new edition of nazis has made in 1992 to avert the then EEC speculated on the Sterling?

Why UK stays by side and does not involve in the leadership of EMU and the in whole EU and fight the Merkelism?

Yes, Great Britain or UK or what ever has the capability to provide EU a new Leadership and gets away the present.

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an elder one

Dec 04, 2011 at 11:48

Ah! Dimitrios it was ever the problem with Europe of who shall wear the crown; personally I can't ever see its resolution; the best - one suspects - that can be expected is that Europe will remain as a collection of independent states under some watertight pact of non-aggressionn; as I see it, as a means to that end, the Euro is a destructive irrelevance. The common market certainly needs negotiable arrangements between its various states to ensure fair trade and control of its military, but that's it; it is when one state feels that it is being unfairly treated in that respect, that it can lead to war of the military variety.

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Dec 04, 2011 at 15:40

Answer to Robert Court @ 09.09...

Was your comment tinged with a whiff of irony? If so, you must be under 40yrs of age, ie, you perhaps have no experience of those industries before privatisation.

Believe me, from someone with no political bias, at least not on this subject, ALL of those industries are now considerably more efficient and fit-for-purpose.

The one exception is the one that should not have been privatised without a major annual subsidy and a significantly longer lease period - namely, the railways.

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an elder one

Dec 04, 2011 at 16:52

And gentlemen, we can criticise our civil service for gold plating everything, but what of that fatuous unaccountable and irresponsible organisation called 'Brussels' that delivers the edicts in the first place; they should be reduced to basics.

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Dimitrios Philippelis

Dec 04, 2011 at 20:22

@ an older one,

UK should come into EMU and take an active role in the management of political activities of EU. Presently, looks like a 'visitor' or 'observer'. I cannot understand and do not believe that how this Soros a bad quality speculator forced Great Britain/UK to stay out of the EMU and the rest of Europe deprived the most needed services of UK in leadership and the knowledge of the economics, of course I do not mean LSE.

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Dimitrios Philippelis

Dec 04, 2011 at 21:47

@ an older one,

It has been three years since the financial crisis struck and we still face the same problems. Depressed real estate prices... high unemployment... and slow economic growth. And despite everything, the worst may be still to come because the Leadesrhip in Europe is absent and MIA (missed in action).

According to Andrews a productive Leadership (regardless political or military) must include 3 components: 1. organisational qualities, 2. personal qualities and 3. architech of organsational purpose qualities.

The two persons who act as the EU leadership, Mr. Sarcozy and Ms Merkel do not show any effort to exercise the required leadership and that is why the above said problem still remain unsolved.

The USA, GB/UK, France and Russia have obligations from the known Agreement FOUR PLUS TWO or TWO VERSUS FOUR to oversee Germany to avoid in the future to be a threat again as in the two world wide wars. UK why remains observer and does not take action against that mindset and mentality of Germans? Your iron lady prime Minister Ms Margraret Thacher was quoting: We need a European Germany but not a German Europe.

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Dec 04, 2011 at 22:04

Maybe once Robert Court gets 'Clarksoned' we in the public sector can attend, watch and laugh our socks off as he waits for the private sector to help him, now that would make reading his rubbish worthwhile to look back on.

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Robert Court

Dec 04, 2011 at 23:09

'Thanks' Mickey - apparently Clarkson's 'joke' was scripted and therefore approved by his boss in the BBC so a pretty pathetic attempt at a joke that wasn't funny (most of the time I used to find him slightly amusing); in the meantime I'll express my views - and i believe that the privatization of the railways was very badly handled and believe our Royal Mail was once considered the best postal service in the world and that our Victorian sewerage systems should have been maintained by governments instead of being allowed to fall into disrepair before being sold off. I've also seen old photographs of houses criss-crossed with telephone lines from a multitude of providers which seemed a little silly; at least we have public roads without too many tolls to pay - in the good old bad old days you'd have had to pay a toll on many roads that passed through private land.

Is saying that some things are 'natural monopolies' (whether run privately or by the state) stupid?

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Jeremy Brown

Dec 05, 2011 at 11:18

It's a constant source of amazement to me that the comments posted here (and in most, similar forums) reflect such cliched views. Are we all so besotted with our own opinions that we can't stand back? Every comment drones on about "the inept government" "the bloated unions" "the work shy public" "the Brussels beaurocrats" and so on. We are in the middle of a huge shift of global focus from west to east, our day in the sun is ending and we are going to have to adjust our expectations fundamentally over several generations. Like it or not, it's well under way. The better debate would be how do we find a role in this new world that isn't all doom and gloom. In such acutely difficult circumstances, nit picking about unions and civil servants is truly fiddling while Rome burns (pace Signor Monti). Could we discuss whether uniting Europe might give us a better chance of surviving and whether binding Russia into Europe might help develop a powerful democracy there and give us huge resources - or any other positive options, really, instead of so much pointless bleating? Jeremy Brown

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an elder one

Dec 05, 2011 at 11:30

Dimitrios, I'm no student of history nor of finance either; mine are simply personal observations. I think you flatter the UK/GB; GB has been constanly at loggerheads with both France and Germany over the past century or so trying to maintain the political balance in Europe yet things are no different now.

The Euro I think was an invention of the French, ever the achitects of fruitless ambition trying to take charge of European affairs. Because they found the political aspects so fraught they deliberately set about the matter - pardon me if I sound crude - arse about face, thinking to work it into a political union; and look where that has got us! There is a majority here I think - including me - who reckon that George Soros did us a favour if indeed it was his initiative that drove us out of emu.

GB/UK will I think for ever remain on the sideline trying to maintain some semblance of a balanced order in Europe as the best influence we can expect to hold.

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Brian Martin

Dec 05, 2011 at 11:31

Getting back to the EU,could someone please explain to me what happened to the COMMON MARKET that seemed to me to be a very good idea.

No one asked ME if I wanted then to join a European Federation of States with laws dictated to me by a group overseas that I did not vote for.

One of our problems is that once our goverment agrees changes in our laws, they actually require us, the people to obey them or else.

We just dont seem to stand up for ourselves and say NO!!

Unlike the French who took a very dim view of thier soft cheese being judged POSSIBLY unfit SOMETIMES and therefore should not be produced.


Is it because the French live in a republic and if they do not like the laws thier polititions try to impose, they go onto the streets and demonstrate to the polititions that THEY imploy the fact that they do not aprove of thier action?

Given the indecision of the eurozone over thier financial crisis, God help us if we handed over our armed forces to EU control.

Some things can not be decided by commitee.

Brian Martin

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an elder one

Dec 05, 2011 at 13:08

Brian Martin, the common market is still there; all of these edicts given out by Brussels are allegedly intended for levelling the playing field to provide for fair European intertrade; it appears that aim has got so beyond itself that its original purpose has become forgotten and the common market but a memory, with it.

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an elder one

Dec 05, 2011 at 13:13

Jeremy Brown, what are your proposals, for starters?

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