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When the rift begins to grow…

When it comes to the European debt crisis there are two sides: The funding countries and the debt-stricken countries. Up to now the focus has been on the latter, but as time passes by with no solution on the horizon, the markets started to turn their attention to the funding nations. Whereas the main question up to now has been if (and how) the indebted countries will be funded, the main worry now seems to be whether the funding countries can afford it. Although investors have become accustomed to mixed messages from decision makers within the Eurozone, it looks like this time the rift is growing dangerously bigger, as mixed signals started to come out of Germany itself. German Deputy Spokesman Streifer stated that the government backs ECB action as there is no doubt that the bank would do anything beyond its mandate, only to be followed by a Bundesbank spokesman who reiterated that the German central bank is still opposed to bond purchases. With the opposition in Berlin unwilling to accept Merkel’s euro-crisis measures and a growing rebellion within her own government, Merkel’s ability to respond to the worsening crisis may become increasingly limited. If you are looking for hints about what the next scene in the European drama will be, you will have to wait for a while. In lack of upcoming fundamental catalysts and with Europe and the US congress on vacation, this is likely to be one very quiet week.
Dafni Serdari
Market Analyst

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