Ashraf Laidi on CNBC About Football & the Eurozone - June 22, 2012
Jun 25, 2012 3:26
Ashraf draws a few analogies between the Euro2012 Football match between Greece and Germany and their respective roles in the Eurozone.
Barely five years ago, it was unimaginable for Germany's "player of the moment" to be named "Mario Gomez", or have a prolific midfielder named "Mesut Ozil". Just as it has become more "accepted" for Germany's football team to have key players originating from Poland, Spain, Turkey and Tunisia, Chancellor Merkel's government may have no choice but to play by the rules of reality demonstrating flexibility in dealing with its Southern neighbors.
The Bundesbank's staunch opposition to bond purchases was overcome two years ago and will likely do so again this autumn with the inclusion of a third LTRO. Although the LTRO was solely useful for containing bond yields and alleviating banks' liquidity costs by dragging down EUROIS spread, it was beneficial in buying policymakers time. Just as the German central bank succumbed to those demands, it has grown tolerant of a temporary increase in inflation. Now Berlin may need to accept rendering the fiscal rules more flexible, by allowing an extension of fiscal targets for Spain and Greece.
Berlin is also being pressured by France and the IMF to further support recapitalizing banks directly without the involvement of the governments, as is currently proposed for Spain.
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The pound is paring its losses following a 100-pip drop caused by an update to a highly-influential election poll. US CPI is due next, followed by the FOMC decision later in the evening --widely expected to keep rates on hold. The Fed has succeeded in keeping itself out of the conversation (for now) as the countdown to US elections starts. Market emphasis shifts towards the Fed's rising purchases of repos and the onset for possible QE4 (more below).