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Did EU summit solved the debt crisis in Europe?

The financial market is now enthusiastic about the deal the leaders of European Union reached in overnight summit. The Dow shot almost 4% up today. I, however, wonder how the (today) optimistic investors will react when the actually read the agreement and find out that it was a very vague proclamation solving nothing. I bet they will be panicking once again. European leaders didn’t solve the crisis, they just kicked the can more down the road. The nearest danger of spreading the debt from Greece to other countries was just moved further in time. It may not spread directly now, but it will spread thru the private banking back to other states, but at this time the crisis will be deeper and stronger because other, until then, uninvolved and healthy countries will be sucked into the problem.

The Greek debt write-off is not sufficient to solve its crisis. By 2020 the Greek debt is supposed to drop down from current 160% of GDP to 120% of GDP. But that doesn’t solve anything. Other European countries, such as Italy, Portugal, Ireland and Spain, whose debt is at 120% of GDP or around also asked for help from European funds. Other issue may be that the same write off of the Greek debt is simultaneous with recapitalization of private European banks. At the first look, this may look as a brilliant strategy, but this is nothing more than just pushing the debt from Greece to private banks. But those banks won’t be able to bear such burden of the write-offs and they start bankrupting (Lehman Brothers effect). To prevent this each individual country will provide guarantee for those banks and bail them out (obviously using taxpayers’ money). Thus this debt will exist, but at this time still healthy countries will be sucked into it.

That will return the crisis back and stronger in a half-year or a year period (mid or second half of 2012). However, Europe will be weaker at that point and less capable to fight the crisis.

Happy Trading!

4 responses to “Did EU summit solved the debt crisis in Europe?”

  1. Renae says:

    As we can see, Europe has solved absolutely nothing and now even Germany is getting into problems. It is the end of the year and it seems that the road ended, so there is nowhere to kick the can down to. Let’s face the troubles. Here they come!

  2. Harry says:

    I do not think that EU solved anything. We will have this problem with EU debt back quickly. Hold your breath, the markets will slump soon.

  3. Patty says:

    European leaders are just kicking the can down the street. It looks like that Euro will bankrupt and the whole Union will break apart. Germany becomes a world leader and the new Deutsche Mark will become the strongest currency in the world.

  4. Enrique Binner says:

    Thanks for your effort on showing others your investing ideas!

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