Sunday, November 11, 2012

Eurozone Issues and the Fiscal Cliff, Once Again the Focus

Many global markets responded positively when the U.S. Presidential election results were announced last week. However, a few hours later, markets swiftly turned negative when European Central Bank President Mario Draghi said, “Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy”. In addition, when discussing issues in Greece and the Eurozone, German Finance Minister Wolfgang Schaeuble said "We are on the way to solving the problems step-by-step," but "on the other hand we have weaker growth in the global economy as a whole and that weighs on our ability to grapple with the euro crisis."

Also, with renewed focus on the U.S. Fiscal Cliff, President Barack Obama suggested that spending cuts and additional taxes from high-income Americans (including himself) were needed and said "that’s how we did it in the 1990s, when Bill Clinton was president …that’s how we can reduce the deficit while still making the investments we need to build a strong middle class and a strong economy. That’s the only way we can still afford to train our workers, or help our kids pay for college, or make sure that good jobs in clean energy or high-tech manufacturing don’t end up in countries like China....” In addition, House Speaker John Boehner said, "I'm proposing that we avert the fiscal cliff together in a manner that ensures that 2013 is finally the year that our government comes to grips with the major problems that are facing us."


MY TAKE

  • Regarding Eurozone issues - with persistent economic stress and continuing tensions among member countries, it is likely that the Eurozone of today will not be the Eurozone of tomorrow.
  • Regarding the U.S. Fiscal Cliff - with policy makers pursuing a mix of 1) “kicking the can down the road” tactics, 2) hardball decision-making and 3) general gamesmanship as the end-of year deadline approaches, global markets will be driven by the degree of confidence in their efforts. We should expect more volatility, and hopefully we do not encounter any unintended consequences

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