PragCap, Martin at Macronomics, and I are on the same page. I noted that while equity markets are rising on reports of the Eurozone bailout, there are palpable red-flags.
The act of leveraging the EFSF is in effect infecting the core-countries of Europe. Sovereign spreads are still rising and the bond market isn’t buying this plan of countries in fiscal trouble pledging to bail themselves out. I also mentioned this problem in one of the more recent Weekly Bull/Bear Recaps.
(Weekly Bull/Bear Recap — Oct 10-14, 2011)
Another issue that hasn’t been mentioned is the growing unrest and nationalism, which I believe will only get worse as austerity is further imposed. The idea of sovereign countries subjecting themselves to the rule of a supranational organization (headed by Germany no less) that can levy penalties on them is a lot to ask for when one considers their histories and cultures. They are NOT states, they are sovereign countries with thousands of years of history.
I hear about how everyone needs the Euro and that breaking it up would be disastrous. Yes it would be very painful, but if the other road leads to continued depression-like conditions for the periphery countries, there may come a point where they just don’t care anymore.