European Debt Crisis (III)
02/Nov/2011 • Currency Updates•
Things are becoming serious. Greece announced late Monday that it would call a referendum on the bailout package. This appears to be a sign that the Greek austerity drive is falling apart. Work stoppages and demonstrations are now part of the habitual Greek scene, and the ruling PASOK party is one or two defections away from losing its majority in parliament, threatening the viability of the Government in Friday’s vote of confidence. The chief of staff of the armed forces has been sacked, left and right are uniting in demanding a snap election in which the ruling party would surely be trounced. It appears that reality is going to catch up with European ineptness even sooner than we expected.
Meanwhile, the steep economic price tag for the ECBs refusal to take the crisis seriously is becoming clearer by the day. To the dismal news out of Spain and Italy last week, we can now add the UK, Chinese and US PMI indices of manufacturing confidence, all of which came in significantly lower than expected. On cue to maximize the egg on Frankfurt’s sadomonetarist faces, the biggest came in the prices paid component, which unexpectedly plunged by more than 10 points in both China and the US. Inflationary pressures are building mostly in Mr. Trichet’s fevered imagination, apparently.
After today’s dismal confidence news, Sterling joined most other currencies in their plunge against the remaining save havens: the dollar and the Yen. All eyes now are on the critical Central Bank meetings this week. Wednesday, the Fed; Thursday, Mr. Draghi’s debut at the ECB. Time is quickly running out for the Europeans.