Heads of State - Crisis Calls for Action

For my maiden post, I'd like to cover what is most likely a fairly basic view on a widely discussed topic.

I believe at this moment in time, financial markets are firmly dictating the next move for politicians worldwide which quite frankly is a disgrace.  There's rarely a good word to be said about either Dominique Strauss-Kahn (in my view, he's guilty as sin) or Gordon Brown, but in 2008 their coordinated efforts at least placed politicians in control of the fear and greed of the rich and resultant welfare of everyone else while the markets came crashing down.

To develop on this view, let's take a look at the key figures of power.  Obama & Cameron appear to be taking a back seat on this issue producing little, but competent input where necessary.  Obama for example with his $300bn job stimulation package as of today and Cameron steering a thankful Britain away from a costly, and most likely nugatory Greek bailout.  In my opinion, they are probably taking the right approach.

Let's jump to another key link;  Sarkozy & Merkel.  In my view, this is where the problem lies.  Two heads of state, left in charge of an unfavourable situation.  Merkel's rebellion within her own lower parliament is quickly shunning her ability to act on a growing Euro zone debt crisis and drowning the market in negative sentiment, whilst Sarkozy is yet to do, well, anything.  Their frequent encounters are indicative of this entire, political predicament.  They meet for 'emergency talks' and nothing comes of it.

I will discuss Euro bonds and my views on what should be done in a later article, but for now, lets look at another unfavourable.  Berlusconi, the man in charge of cutting Italy's $1.9 trillion debt mountain, whilst being charged himself for tax evasion, sleeping with an under-age and attempting to bribe a judge.  Unfortunately for the rest of the world, the strength of the Italian economy could be the tipping point between a continuation of the current futile recovery and a double-dip recession scenario, which is why having Berlusconi in power at this point in time is a threat to financial markets globally, rather than just an embarrassment to the Italian people.  While a Greek, Irish and Portuguese bailout is little more than a nuisance for the EFSF's 440 bn euro safety net, this wouldn't be enough to save Italy in the case of default.  I'd argue, that even increasing this amount to the proposed 2tn Euros, the Euro would still collapse, resulting in vast bank exposure to European government debt to trigger another global economic meltdown.  In my view, the best thing Berlusconi can do is listen to the pleas of his country and step down from what he described himself as "this bloody country [Italy]."

In my view, change will occur.  As will be discussed in the next article, MerKozy at some point will have to respond to the growing pressure on politicians to take control, and as far as I can see, a Euro Bond looks like the best option.