Gold Gives Ground As Europe/Germany Decides Its Future
The markets are breathing a collective sigh of relief as the major global players, with the exception of the Chinese, are now sitting at the same table determined to forge a path through this political and economic malaise. Gold is trending lower as the risk trade is reduced. It is a relief that the U.S. administration has dispatched their boy wonder, Messrs Geithner, to Europe, whether he can calm nerves and create a political consensus is the question.
The European Project is at a fork in the road, do they bind themselves together politically and fiscally and socialise the burden where rich pick up the tab for poor or do they withdraw into their domestic political worlds and turn their backs on what is arguably the greatest economic union in the history of the world.
The nexus of the issue is the same as it has always been, can you have an economic union without political union. The answer would seem to be….. maybe, as long as nothing too serious happens, but the moment the economic cycle shifts down a gear, domestic populations suffering from economic contraction will go tribal and look after their own first.
A thought provoking paper by the UBS economist, Paul Donovan, articulated the choices facing Europe in a paper “How to break up a monetary union” written in February 2010. His central thesis is that in its current form the Euro just does not work, especially a one size fits all interest rate policy.
Here are some excerpts from his excellent report.