Here is some interesting commentary on the "real" reasons for certain actions and outlooks, courtesy of http://www.marketwatch.com
By David Marsh, MarketWatch
LONDON (MarketWatch) â€” There are some powerful reasons of self-interest why the U.S. and China might wish to spread the word that the European sovereign debt crisis is past its peak. But you shouldnâ€™t necessarily believe them.
After the quick burst of first-quarter optimism over the European Central Bankâ€™s liquidity injections, governments and markets are coming down to earth. This was underscored by European Union officialsâ€™ warning to finance ministers on Friday that the underlying causes of the crisis have not been resolved.
The worldâ€™s two biggest economies are doing all they can to avoid rocking the boat. But will it be enough? China, confronting higher domestic production costs, a stronger yuan and more fragile markets for its exports all over the world, wishes to avoid a weaker euro exacerbating its growth slowdown.
In the U.S., ahead of the November elections, President Barack Obama has no desire to upset the euro, hoping that a semblance of order on European financial markets will shore up global confidence, prolong the improvement in U.S. labor markets and help him hang on to the White House.
Washington has told Berlin (and anyone else who may be listening) to ensure the European turbulence is firmly under control during the poll run-up. The quid pro quo is that the Americans, for one, will not demonstrate openly their obvious qualms about the European recovery process.
Whether the strategy will work is not at all clear. Behind the scenes, both China and the U.S. are almost equally worried about how slowly Europe is steering out of trouble. There is talk that Europeâ€™s banks need to deleverage to the tune of $2 trillion to $2.5 trillion in the next two years. Whereâ€™s the money going to come from? The increase in the euro stateâ€™s bailout fund to 700 billion euros decided on Friday would not be enough, especially since it is concentrated on the sovereign states and not the banks.
Much criticism concerns lack of German leadership. Nothing much can be done about this, it seems. The Germans have an aversion about leading. As Prof. Michael StĂĽrmer, the well-known German historian and commentator, puts it, Germany doesnâ€™t even have a word for â€śleadershipâ€ť. Since Hitler, â€śFĂĽhrungâ€ť and â€śFĂĽhrerâ€ť are not well regarded.
Indeed, in relation to any kind of effort to prop up the euro edifice, â€śMerkelâ€™s Law of Permanent Disappointmentâ€ť has come into play â€” as the long-standing debate over increasing the bailout funds has underlined. The German chancellor will always do more than she originally promised to help out errant states, but the funds committed will always be less than necessary to solve the euroâ€™s problems once and for all. So people on both sides of the argument, whether conservative German voters or the financial markets or the hard-up states themselves, will always be disappointed â€” for equal and opposite reasons.
The Chinese and Americans are concerned about the ECBâ€™s lack of full-scale commitment to euro rescue action. Again, there is not much opportunity for change here. With the Bundesbank leading complaints from the sidelines about the ECBâ€™s fall from a pure form of central banking independence, the hawks on the ECB council are starting a campaign for an â€śexitâ€ť from the ECBâ€™s liquidity injections. Observers in Washington say this is mightily premature and shows up Europeâ€™s hesitancy and lack of resolve about what to do.
Meanwhile Jens Weidmann, the Bundesbank president, is leading the charge of the hard money brigade. In an uncompromising speech in London this week, he used possibly the most florid phrase ever coined by a Bundesbank president, saying the â€śwall of moneyâ€ť erected around Europeâ€™s financial problems would, like the Tower of Babel, â€śnever reach heaven.â€ť
Weidmannâ€™s message is clear. In coming months, the temporary factors that have calmed the landscape will retreat from view. What we now see is the calm before the storm.David Marsh
is chairman of London and Oxford Capital Markets.