This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Greece Gets the Boot, Germany Takes the Lead: Europe's Endgame

My point here is that the German Constitution substantially restricts the types of actions that the ECB, EFSF or ESM can take. In addition, it seems extremely unlikely that a constitutional amendment could be passed that effectively allows Germany to bailout failed states by monetizing their debts.


One Last, Big, Under-the-Radar Screen

Frankfurter Allgemeine had a fascinating story recently on the TARGET system. TARGET is the short form for the Trans-European Automated Real-time Gross Settlement Express Transfer System. I did not see this picked up in the North American press.

TARGET is the system that is used for payments among banks. The latest version of this system went live in November 2007 and is called TARGET2. This is a European system rather than a Eurozone system. (Note that Sweden and the U.K. do not participate.) Here's an overview. The system is very similar to the FEDWIRE system in the U.S. In the U.S., the members (regional Federal Reserve Banks) settle twice a year.

All this is routine -- except Germany has racked up a 465 billion euro balance -- they are essentially providing massive credit to Ireland, Greece, Spain, Portugal and Italy -- this is backdoor funding of these troubled countries. For an interesting analysis of TARGET2, read John Wittaker's paper.


The Endgame

In my opinion, it is up to Germany to save the euro. Unclear is the way that it will unfold. The EFSF does not have the firepower -- even with leverage -- to deal with the fallout. It is also case that the ECB is severely constrained. It is unrealistic to think that they can act like the U.S. Federal Reserve did during the 2008-2009 financial crisis.

In addition, with the problems spreading all over Europe, the credit worthiness of the EFSF is questionable. Frankly, who is going to be contributing among the big four? Not Spain. Not Italy. Maybe France but they would surely lose their AAA status as a result (though they will likely lose it anyway).

It really comes down to Germany. In particular, bilateral actions. Forget the multilateral actions that take over a year to be approved by 17 national legislatures.
5 of 6

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $94.19 -1.04%
FB $118.06 0.54%
GOOG $695.70 0.48%
TSLA $222.56 -4.20%
YHOO $36.00 -0.03%


Chart of I:DJI
DOW 17,651.26 -99.65 -0.56%
S&P 500 2,051.12 -12.25 -0.59%
NASDAQ 4,725.6390 -37.5850 -0.79%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs