The European Tug Of War Has Begun
Germany is considered the most important country in the European Union. This country now has to decide if it is willing to go all in and allow the European central bank to have complete control over the banking crisis that is taking place. France has already been pleading for the European Central Bank (ECB) to start to print money to bailout the European banks. This puts Germany in a very compromising position since it has been so cozy with France over the past two years. If the German government agrees to allow the European Central bank to have more power the major stock indexes in Europe could see a short term relief rally. This action would be very similar to what the Federal Reserve in the United States has done over the past three years. All traders should remember the stock market loves a bailout. In fact, the stock market might actually be demanding a bailout.
Today, the stock markets in the United States are trading sharply lower, however, the major European stock markets are all trading lower by less than 1.0 percent. This is really not a major decline considering what is happening in Europe today. European bond yields are surging in every country this morning. This could certainly change later this afternoon, but right now all of the European markets are holding up very well considering the circumstances.
The European financial stocks will usually lead the stock markets lower. This morning, all of the European bank stocks in the United States are trading slightly lower. Most traders would think stocks such as Credit Suisse Group (NYSE:CS), Deutsche Bank AG (NYSE:DB), and UBS AG (NYSE:UBS) would be plummeting lower, however, they are all basically trading flat to slightly lower this morning. We shall see if there is another European Union announcement that causes the markets to bounce. If there is nothing of substance that comes out of the European Union soon this could be the start of a European Union breakup. Germany seems to hold all of the cards at this time. If they agree to allow the European Central Bank (ECB) to print money, the bailout begins as the ECB will likely start to monetize the debt. If Germany resists and does not allow the European Central Bank to have more power the European Union will end within the next year or sooner.