Ad Hoc Commentary – Merkelections, status quo won a landslide, probably time to short the EUR.
Merkelections did not give us a hung Bundestag as yours truly expected. The Germans instead handed Merkel a landslide, essentially giving the status-quo a landslide victory. However, the surprise strength of the Euro-skeptic Alternative for Germany (AfD) that pushed Merkel’s ally, the Free Democratic Party (FDP) out of the Bundestag is a reminder to Merkel that ordinary Germans wants austerity. Not more largesse extended to the PIGS.
Brussels had held back on all major European decisions to wait for Merkel to win the re-election. If politics in Europe is like in America, then it is likely that Brussels agreed to wait because they were promised more flexibility after the re-elections. We remember:
“…This is my last election. After my election, I have more flexibility…”
Now that Merkelections is behind us, it is time to ask if Germany will indeed have more flexibility after the elections given the surprise strength of the Euro-skeptic AfD? Two questions stand out:
1. Will Merkel yield more sovereignty to Brussels for the banking union?
2. Will Merkel agree to more PIGS bailout?
Of course a good politician will never say that, on the contrary:
“…Merkel told supporters this week she will continue to extract concessions from the region’s indebted nations if she’s re-elected…”
Merkel will likely give up sovereignty to Brussels for the banking union in an effort to keep the sovereign debt crisis at bay. However, the rise of Euro-skeptic AfD will probably force Merkel hands to reject more bail-outs for PIGS. Struggling countries will have to adapt Cyprus-type bail-ins. This will lead to capital leaving the European banking system, and lead to more austerity within Europe. Economic growth will suffer. After all these years, it is probably time to finally short the EUR as capital leave for greener pastures.
Over in America, it is no surprise that Larry Summers decided to pull out of the Fed race. Yellen will succeed Uncle Ben:
It is a surprise that Obama decided not to attack Syria. Congress probably decided that it is better for approval ratings not to attack Syria against the will of the people. Since we don’t have a war to distract the masses, the debilitating debt debate will go on and Obamacare will be the whipping boy.
Since Obama decided to waive anti-terrorism provisions to arm Syrian rebels, the risk of Pakistani nuclear weapons in the hands of Al-Qaeda has not totally diminished:
“…President Barrack Obama ordered such a waiver for supplying chemical weapons-related assistance to “select vetted members” of Syrian opposition forces, the administration announced on Monday…”
“…Whatever the Americans do, they must never cross the red line of arming the Syrian rebels, i.e. the Pakistani Taliban. They do so at their own peril because the Taliban is likely searching from revenge (qisas) rather than blood money (diyat)…”
Good luck in the markets.