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SINGAPORE, Dec. 12, 2011 /PRNewswire-Asia/ -- Steen Jakobsen, Chief Economist of Saxo Bank publishes his views on the EU Summit. Full text as follows:
EU Summit: Extend and Pretend Continues
Steen Jakobsen
The outcome from this EU Summit is a classic extend-and-pretend and follows the same modus operandi at the previous meetings of European leaders on the EU debt crisis. Despite it being the 17th meeting (yes 17th!) the stakes have increased but the Grand Plan is still not in place. Now we have a new deadline in March which happens to be right in the middle of Italy and Spain trying to raise 300-500 bln. EUR for their debt refinancing!
I would be very surprised if there is a lot of risk-on upside in the summit's outcome. One has to acknowledge however the effort made to use the International Monetary Fund, which is a slippery road vis-a-vis the EU treaty. On a positive note, putting the EU debt brakes on is fine, except they already exist in the form of a 'stability and growth pact' but have never been adhered to.
The worst thing from this summit's outcome is the public scolding of UK Prime Minister Cameron. I would not be extremely surprised if this will lead to further discussion in the UK to have a referendum on the EU. This will result in a clear 'no' and could ultimately result in the UK leaving the EU. The odds of the UK actually leaving the EU before Greece should be falling right now!
The Eurozone versus EU-27 is also at an all-time low in terms of solidarity and agreement. (Note how Sweden, Hungary, the Czech Republic and the UK stayed outside for now.) Investors are likely to reward countries not moving forward, as the EU project, unfortunately through the inaction of politicians, is losing credibility for every meeting that's held. The whole focus has been on surviving from one meeting to the next, but ultimately the leaders will lose this battle, even though they also keep on fighting to win.
The EU debt crisis no longer has best solutions, not even second best solutions. We are dealing in choices of extremely negative options, most of them making the situation worse not better. Europe has a solvency issue but every single EU Summit has led to increasing liquidity to deal with it, i.e. to deal with debt more debt is created. I foresee a 'Cardinals Meeting' in 2012, meaning that: following a major drop in the stock market, the EU will close the bond markets for a week or two and work out who is in, at what price and what the loss is.
Time is running out, and the cost of no-action is rising. 2012 will be a new low for European politics, growth and markets, but it will probably also be a time to reset so that Europe and the rest of the world can move away from 'Fiat' money, and liquidity at all costs, towards focusing on survival, jobs and optimism.
The focus needs to be on improving solvency, working out a tri-party agreement (unions, governments, employees) on how to improved productivity, make an internal devaluation of costs (salaries) and maintain social balance.
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About Steen Jakobsen
Steen Jakobsen was appointed to the position of Saxo Bank's Chief Economist in March 2011.Mr. Jakobsen returned to the Bank after two years' absence. During that time he has been Chief Investment Officer for Limus Capital Partners. Prior to his departure in early 2009, Mr. Jakobsen was with Saxo Bank for almost nine years as Chief Investment Officer. Mr. Jakobsen has more than 20+ years of experience within the fields of proprietary trading and alternative investment. In 1989, after finishing his studies in Economics at Copenhagen University, he started his career at Citibank N.A. Copenhagen from where he moved to Hafnia Merchant Bank as Director, Head of Sales and Options. In 1992, he joined Chase Manhattan in London as VP, Head of Scandinavian Sales, and then the Chase Manhattan Proprietary Trading Group. 1995-1997 he worked as a Proprietary Trader and Head of Flow Desk at Swiss Bank Corp., London. In 1997, he became Global Head of Trading, FX and Options at Christiania (now Nordea) in New York until he joined UBS in New York in 1999 as the Executive Director in the Global Proprietary Trading Group.
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