View the article online at http://citywire.co.uk/money/article/a548878
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?
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.
News sponsored by:
After Boris announced he was backing Brexit, sterling suffered its biggest slump in six years. Our Market Mavens discuss. Follow the Market Mavens LinkedIn page for weekly videos, in which our panel of industry experts share their views on financial news
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
More about this:
Look up the shares
- TUI Travel PLC
- Thomas Cook Group PLC
- Aberdeen Asset Management PLC
- Northgate PLC
- Carillion PLC
- Micro Focus International PLC
- Standard Chartered PLC
- PZ Cussons PLC
- Tesco PLC
More from us
- Eurozone endgame nears... but there's a sting in the tail
- Europe hopes lift FTSE ahead of US jobs report
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.