The Risk Telescope — Band-Aids and Beliefs
What a relief. Sufficient political will exists to continue using the euro and working together in Europe. Sufficient political will exists to permit major European banks to continue functioning. Sufficient political will now exists to transfer yet more authority to the European Commission and create more Brussels-based administrative infrastructure to support yet another EU-level President. European policymakers once again reward optimists with fine statements and perennially incremental progress towards a more unified Europe.
We have seen this show before. Relief that the world is not ending today in Europe gives way to more sober assessments that the world as we know it is indeed ending and giving way to a new equilibrium. The agreements articulated over night in Brussels can be characterized under two headings: Band-Aids and beliefs. This issue of The Risk Telescope assesses last night’s agreement and its implications for financial regulation policy, central bank collateral policy, monetary policy, derivatives markets, and sovereign bond markets.
The bottom line is that European policymakers have successfully yet again stalled for time. The question is whether that strategy can continue to gain traction over the next 12-18 months during which implementation of its convoluted agreements will need to occur amid a climate of anemic economic growth.
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