Another bailout proposal leads to another rejection by a Euro Zone leader. On December 13th, German Chancellor Angela Merkel rejected a proposal to raise the upper limits of the ESM, causing the Euro to drop more than a point, and threaten the 130 support level against the dollar.
Having surged on earlier speculation that the Fed may hint at QE3, and follow up reports from RanSquawk that the Straits of Hormuz are either closed or in process of doing so, it is now time for the roundtrip, after Reuters just reported that hopes of EFSF-like expansion for the ESM have been dashed.
- MERKEL REJECTS RAISING UPPER LIMITS OF FUNDING FOR ESM BAILOUT MECHANISM -SOURCES IN RULING COALITION – RTRS - Zerohedge
Equity and currency markets are realizing that EU leadership no longer has the understanding or cohesion to create a bailout plan that will stabalize the member nations, and resolve the ongoing debt crisis. Short term fixes by the Fed, and long term agreements like the one reported last Thursday at the EU-Summit, last only a few days before the underlying problems filter back up to the fore.
The EU and entire Euro Zone is beholden to Germany or the Federal Reserve for any potential solution, and each entity is being held back from serious monetization by a growing concern of inflation. The German people still remember the Weimar Republic, and the hyperinflation of that era, and are willing to let the rest of Europe suffer or fail on their own.
Until the EU is in lockstep with one another on a workable process, the only thing they can offer to appease the markets will be a continuation of rumors of bailouts, but little in actual substance or action. The European banks are currently unwilling to accept losses, while the sovereign nations are unwilling to institute massive austerity measures. Until this occurs, or the central banks give in to massive monetization programs, the Euro will continue to fall in relation to a much stronger dollar.
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