BarroMetrics Views: The European Summit

If you read the papers, you’ll see conflicting views on who ‘won’ at the meeting. Most seem to agree that Sarkozy came out in front mainly because the UK stopped Merkel from getting all 27 EU members to the treaty change. In my view that is confusing the appearance with the substance.

We should call this the “New German Empire”; Germany, aside from having to take a circuitous route to implementation, forced France to agree to the German view of Europe.

The effect of UK’s refusal means that each country in the EU will have write into its constitutions or laws the agreement on  austerity and fiscal controls. So why did the 26 countries agree to the German view: because the alternative would have been to leave the EC and that apparently was a nightmare they were not prepared to accept. So, does that mean all is now well with Europe.

Hardly, all that has happened is they have again postponed the problem.

The key problem is the agreement of a .5% structural deficit with a to be nominated European Institution having the ability to over-rule the offending budget.But in coming to the agreement, no mention was made of ‘who would decide’ that a country’s budget offended. Germany? The EU states? It seems to me that Germany alone deciding is not acceptable and a vote by EU states is open to all sorts headaches not the least of which is an inability to decide - look at the UN decision-making processes.

This is why I say, all we have done is postpone the problem.

What does this mean for traders? I treat the ES as a ’surprise event’ i.e. an event that has short-term effect on the market but does nothing to change the long-term trend. So for me, in the S&P, the 1371 level will hold for some time to come and I expect to see a breach of 666 in 2012. If the inverse relationship between the US$ and S&P continues, this means we’ll see a stronger US$ in 2012.

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