However, the European Union may be coming to an end. With the latest agreement, it appears that the Euro will survive among the 17 nations that use it, which would be great news. However, it is not clear what will happen to the ten nations that are members of the EU but do not use the Euro, such as England.
When I woke up at 4AM, I was expecting chaos in the European markets, with the value of the Euro plummeting. (That would mean gold would be falling further, and I was expecting to buy some today.) Sure enough, Asia was down sharply, but Europe is mixed at this hour, apparently more focused on the downgrade of three French banks by Moody’s. The fact that Europe is not collapsing this morning comes as a pleasant surprise.
It looks like Europe will now work on the next Grand Plan. You’ll remember the first one, i.e., that austerity programs in the PIIGS would stop the contagion. Then, there was Grand Plan 2.0 to establish the EFSF (European Financial Stability Fund), which will morph into the ESM (European Stability Mechanism) next year. I think Grand Plan 3.0 was for the ECB (European Central Bank) to issue Eurobonds, guaranteed by all 27 member nations. Then Grand Plan 4.0 was to create an alternative union of the members willing to submit their fiscal policy to Brussels. A version of this, call it 4.1, is the latest tenuous agreement. It calls for automatic measures to be taken when any of the 17 nations using the Euro violate their deficit covenants. The previous agreement contained similar sanctions, but they were not automatic and were never implemented.
Don’t ask me what Grand Plan 5.0 is, because nobody knows. I just know it is out there. The Europeans desperately want to keep it together. Helpfully, they are no longer in denial and are really working to prevent this train wreck and save the EU. I’m beginning to believe there will be no Eureka moment, when we know the EU will survive. And, the agreement last night may be the subtle change in momentum, which will finally liberate the U.S. stock market.