"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 19 hours The $85B Merger That Could Change The Media Forever
  • 20 hours Why Are Governments Creating Their Own Cryptocurrencies?
  • 21 hours How Debt Cycles Impact Gold
  • 22 hours Investors Up the Ante In $1.5B Uber Loan Deal
  • 24 hours Are Gold Miners Poised For A Breakout?
  • 1 day Is The "Crypto Winter“ Over?
  • 1 day China Says It Doesn’t Fear Trade War
  • 2 days Twitter CEO: The World Will Have A Single Currency
  • 2 days Asian Currency Correction Could Signal Looming Crisis
  • 2 days Best Buy Drops Telecom Giant Over National Security Threat
  • 2 days The Pros And Cons Of The Federal Interest Rate Hike
  • 2 days Good News For Gold Bulls Despite Interest Rate Hike
  • 2 days Trump Hits China With $50 Billion In Tariffs
  • 2 days Russian Gold Reserves Hit Record High Amid Rising Tensions With West
  • 2 days Stocks Pull Back Following Interest Rate Hike
  • 3 days Will Regulatory Rollbacks Make Banks 'Too Big To Fail?'
  • 3 days Elon Musk’s $2.6 Billion Tesla Challenge
  • 3 days Tech Giants Could Be First Victims Of U.S. Trade War
  • 3 days Dow Gains Despite Fed’s Rate Hike
  • 3 days The Biggest Threat To Chinese Oil Futures
Economists Polarized On Trump’s Tariff Plan

Economists Polarized On Trump’s Tariff Plan

Economists are polarized on Trump’s…

Stocks Pull Back Following Interest Rate Hike

Stocks Pull Back Following Interest Rate Hike

Fed's interest rate hike drove…

Axel Merk

Axel Merk

Axel Merk, President & CIO of Merk Investments, LLC, is an expert on hard money, macro trends and international investing. He is considered an authority…

More Info

Eurozone Needs Markets Not Bailouts

Deutsche Bank Chief Josef Ackermann is looking after his own house rather than the eurzone's interests in calling for a Greek bailout. If there is one thing the financial crisis has taught us, it is that simply patching up trouble spots may not be a recipe for increased structural stability. If there was a problem it is that Greece was enticed to spend too much last decade because its cost of borrowing was too low. If Deutsche Bank is concerned about the fallout of Greek debt, the bank should heed European Central Bank (ECB) President Trichet's advice and take advantage of favorable market conditions to raise more capital.

There is a bright side to the Greek drama: the markets are reining in those who are fiscally irresponsible. In our assessment, the eurozone should work on reform that works with, rather than against, the markets:

  • German banks are exposed to just about any crisis in the world because their domestic fixed income markets are underdeveloped; as a result, German banks are at risk of overpaying in their quest to deploy their capital, plowing money into U.S. subprime mortgages and Greek debt, amongst others. To achieve a more stable German, European and global economy, domestic fixed income markets around the world must be fostered. Such a move increases transparency and stability throughout the markets. Increased liquidity in the eurozone fixed income markets would also make the euro a more formidable competitor to the U.S. dollar. Such change can't come overnight, but should be a priority for policy makers and financial institutions alike.

  • In our assessment, the euro is structurally sound. The ECB has pursued more robust policies than the Federal Reserve (Fed) throughout the crisis and is far further ahead in implementing its exit strategy. We are more concerned about UK sovereign debt than a contagion within the eurozone.

  • However, while the euro may be on a strong structural footing, the political process to discuss problems in a euro area country is not. We believe it would be most helpful if the European Commission on Economic and Monetary affairs took a greater leadership role in streamlining the debate. In this context, we applaud EU monetary affair commissioner Olli Rehn's comments today that remind all eurozone countries, not just Greece, about their fiscal responsibilities. In the absence of such leadership, there appears a lack of confidence by European policy makers in their own currency. The noise created in these discussions may add to instability and uncertainty; such noise, however, may be more a reflection of the weakness in the process, but not the substance.

We don't expect eurzone countries to reach their deficit targets anytime soon, but the eurzone, unlike the U.S., has rules in place to encourage fiscal restraint. Policy makers in the eurozone should now work on improving the process before contemplating bailouts. Greece certainly has major challenges, but when the dust settles it will likely be seen for what it is: a struggling country comprising 2 percent of the eurozone GDP. That's not a justification for a bailout to help Deutsche Bank recover paper losses. Over time, but not overnight, Greece will be rewarded with a lower cost of borrowing should they execute on their ambitious austerity measures.


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter