Jacob Lew Trying The Impossible

Published by City Blaster on Wed, 10/04/2013 - 10:47 in
au revoir austerity

Daily Market Commentary for April 10: George Soros and Jacob J. Lew were the last two adding to the already long list of austerity-opposers. Soros talks about a German exit, Lew is trying the best he can to convince a deaf Germany to engage in growth-oriented policies.

With the Portuguese constitutional court just saying no to Coelho’s austerity measures, the EZ may not have any other chance as to put some brakes on debt measures as Europe is lurching from one crisis to another and fighting against a rising unemployment.

George Soros said at a conference that there are just two options on the table: the adoption of Eurobonds or a German exit from the EZ. US Treasury Secretary, Jacob Lew is also trying to convince finance ministers in France and Germany on adopting a growth-oriented policy. If that will most certainly be welcomed in Paris, it has good chances of being ignored in Berlin as Germany keeps insisting that balancing government debt is the best path to growth.

After years applying austerity measures, we now may safely say the results were catastrophic. Not only the debt burden is almost the same but also a new problem was created. Europe has a new big monster - unemployment. While the US is recovering very well due to the expansionary policies adopted, Europe is struggling to grow. Huge efforts were asked by national governments in Ireland, Portugal, Greece, Spain and Italy but unfortunately those efforts lead nowhere and thus these countries are now one step behind. Those countries will have to start again and the first step will be to put an end to austerity.

Jacob Lew is trying the impossible. Germany is to harsh to convince and European leaders are relatively weak to insist.

While Jacob tries his best, the Euro is gently rising. I do believe this rise will be short-lived, even though today there are some risks with the FED minutes report to be known at 19.00 UK time. Economic conditions are the penultimate driver of foreign exchange (with interest rates being the ultimate). Under the current conditions, fundamental indicators point to short positions on Euro.

The main equity indices rose yesterday on more dovish comments coming from the US FED. The bubble is forming. Be careful.