Just after the European equity markets had begun to climb of the post capitulation floor, the Euro Zones most powerful leaders produce another plan of intent that has “European Farce” written all over it.
From their hastily organized pow wow in Paris, the leaders of France and Germany, namely President Sarkozy and Chancellor Merkel decided to announce they’ll press for closer Euro Zone economic integration coupled tougher deficit rules and more rigorous supervision to stamp out the debt crisis. They also rejected € bonds and expanding the €440Bn rescue fund.
Firstly no one believes a word that is said about imposition fiscal discipline for such measures run through the Council of Ministers, heavily populated by French & German officials.
In past times when both France & Germany broke the fiscal rules any attempt to fine them was voted down.
In later years when a vote to actually impose a fine on Portugal and Greece was passed, the fine was never collected. So sorry to say, no believes a word they say now.
However, all this useless proposal passing is insignificant when compared to the rank stupidity that comes in the guise of seeking to reintroduce a financial- transaction tax, (FTT), which was rejected in 2010.
Can they see the utter folly in seeking to impose an FTT? Be in no doubt it is a tax on trading in financial assets such as bonds, equities and futures. It will lead to decline in market efficacy as trading volume will fall. Major European banks that still look to their investment banking operations will see a decline in commissions and trading profits and spreads will rise.
But enough pussy footing… this is a declaration of war on high frequency traders whose only crime is to have used the market to fairly price the debt of wasteful Euro Zone governments and the banks that have blindly accumulated position in the sovereign junk.
Markets will be less efficient and governments will in the long run find access to market capital more costly.
I have not one good word for the leadership of France and Germany. They hail from political parties that are meant to champion the free market, and yet they seem to do all they can to thwart the capital market wealth creators.
It simply shows that politicians are incapable of recognizing that one of Europe’s best resources is its free to trade capital market place. They cannot bear the fact that distressed debt is being priced poorly for the simple reason that it is poor. They cannot bear the fact that the great Euro project that feeds and fills an calendar of gatherings and conferences is falling apart.
It is falling apart not because the market is forcing it to do so…rather it is because it is hopelessly flawed and on virtual permanent life support.
That is why Europe’s so called big two, have nothing other that stupidity to offer.
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