EconoMonitor

The Kapali Carsi

Merkel gets the full Monti

If expectations are set very low, even mediocre results will lead to euphoria.

Here’s the intro. to my latest Hurriyet Daily News column, where I begin by explaining why markets reacted so strongly to the Eurozone Leaders Summit agreement. I then summarize what was decided upon before briefly discussing the merits and shortfalls of the measures.

Anyway, you can read the whole thing at the HDN website. I apologize for the wordplay/movie reference in the title, but if you are a loyal reader, I guess you are already used to those:). By the way, most people think the full monty has something to do with striptease, as the movie is more famous than the phrase. It is actually a Northern England phrase that translates best to American English as “the whole nine yards”- . Just making sure you didn’t think I was insulting Frau Merkel:). I have no intention to: I love Germans, especially since their best football player is of Turkish origin- except when they decide to invade France or burn some of my countrymen, but the former has not happened for seven decades, and the latter two….

And if you are wondering, I have never been to Northern England; I just have seen quite a few movies taking place in there, such as Goal, Billy Elliott, Looking for Eric and The Damned United, in addition to The Full Monty of course.

Speaking of the title, I was so pessimistic on the outcome of the summit that I had already chosen my title after Merkel’s “over my dead body” remark: Angela’s Ashes. So I was kind of disappointed when I had to ditch my “creative” title:)

Coming to more serious matters, I have to accept that this is not my most original column, as this was the hot topic of Friday and the weekend. My only real contribution was the Bulow-Rogoff critique, and that point was originally made by Nouriel, as I mention in the column- and I’m sure others have made the same point without referring to the paper. I nevertheless have a few extra points to make:

First, I’d recommend RGE’s own Megan Greene’s counterargument against government bond purchases, in the secondary or primary markets. But if you want to be optimistic, there is a New Yorker article  quoting Thomas Sargent, from his Nobel Prize speech, that crises are good times for a fiscal union. According to him, that’s how the U.S. did it. But if pessimism is what you are after, FT Aphaville offers quite a bit of it. There are serious flaws, or uncertainties at the very least, in the bank recapitalization plan, and as I mention in the column as well, no word on eurobond issuance, or deposit insurance, which you’d need for a banking union, for that matter. I could go on and on, but there is no need to give 50 links here.

Finally, on my point that markets will sober up soon, Floyd Norris shows, using a recent Barclays research note, that history is on my side: There is usually a quick positive reaction to Eurozone 2-day meetings, but that usually fades away quite quickly. Let’s see what will happen today…

And yes, the Italians got all the attention by beating the Germans on and off the pitch, as I mention in the column, but it was the Spanish who were the big winners of these last few days, as I mention in the column as well…

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