Eurozone Needs Markets Not Bailouts

By: Axel Merk | Thu, Mar 18, 2010
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Deutsche Bank Chief Josef Ackermann is looking after his own house rather than the eurzone's interests in calling for a Greek bailout. If there is one thing the financial crisis has taught us, it is that simply patching up trouble spots may not be a recipe for increased structural stability. If there was a problem it is that Greece was enticed to spend too much last decade because its cost of borrowing was too low. If Deutsche Bank is concerned about the fallout of Greek debt, the bank should heed European Central Bank (ECB) President Trichet's advice and take advantage of favorable market conditions to raise more capital.

There is a bright side to the Greek drama: the markets are reining in those who are fiscally irresponsible. In our assessment, the eurozone should work on reform that works with, rather than against, the markets:

We don't expect eurzone countries to reach their deficit targets anytime soon, but the eurzone, unlike the U.S., has rules in place to encourage fiscal restraint. Policy makers in the eurozone should now work on improving the process before contemplating bailouts. Greece certainly has major challenges, but when the dust settles it will likely be seen for what it is: a struggling country comprising 2 percent of the eurozone GDP. That's not a justification for a bailout to help Deutsche Bank recover paper losses. Over time, but not overnight, Greece will be rewarded with a lower cost of borrowing should they execute on their ambitious austerity measures.

 


 

Axel Merk

Author: Axel Merk

Axel Merk
President and CIO of Merk Investments, Manager of the Merk Funds,
www.merkfunds.com

Axel Merk

Axel Merk wrote the book on Sustainable Wealth; peek inside or order your copy today.

Axel Merk, President & CIO of Merk Investments, LLC, is an expert on hard money, macro trends and international investing. He is considered an authority on currencies.

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