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The World Awaits

There is a crucial meeting on Friday. The meeting will determine the future path of the eurozone, the European Union as a whole and the world economy. The meeting is a summit of EU leaders and important decisions have to be made. It has been called the ‘last chance’ to solve the eurozone crisis, though these last chances are, in reality, rarely final (note: there have been at least four ‘final solutions’ to the crisis so far, through rescue packages and other negotiations).

Investors are optimistic that eurozone policymakers will agree on a comprehensive plan to tackle the crisis.The European Central Bank’s December meeting on Thursday and the Friday┬ásummit are seen as having the potential to calm the markets and make a significantly step towards resolving the eurozone crisis.

But there remains the risk of a disappointment that would raise fears of an imminent break-up of the eurozone and send markets into a fresh downward spiral. And there is some doubt in the market that the summit will provide anything more than temporary optimism, only to be replaced by doubts that the politicians are able to deliver on the requisite fiscal union.

Many are calling for a dynamic solution, whereby the ECB agrees to print money in unlimited quantities to support the bonds of eurozone states – something Ben Bernanke would do without a second thought in the US. This would lead to inflation, but would help to ensure that all sovereign debt would be repaid in full. Angela Merkel and Nicolas Sarkozy are against this plan, arguing that it would violate both the EU treaty and national laws.

We will, of course, keep you posted about important developments during the course of the week.


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