Via Joe Weisenthal, Jim Reid at Deutsche Bank says that if Angela Merkel won’t relent on ECB action to prevent the collapse of the European debt situation, you ought to “dig a hole in the ground and hide” as your best solution for avoiding economic catastrophe:
The problem for the market is whether to take these comments at face value or to see them as part of a general tactic of trying to force other leaders into line or believing that the comments will be reversed if the alternative to an aggressive ECB is the collapse of the Euro. If you don’t think Merkel’s tone will change then our investment advice is to dig a hole in the ground and hide. It’s difficult to see any other scenario than widescale Sovereign defaults without an aggressive ECB. Indeed it doesn’t seem we’re alone on this anymore. An Irish Times story overnight said that Sarkozy told his deputies yesterday that the euro would not survive unless the ECB decisively entered the fray.
Here’s the problem. For a bluffing strategy to work, people need to believe it. But a bluff that’s credible to Italians should also be credible to Finns. And if you’re in Finland and you think Merkel’s not bluffing, then, notwithstanding Finland’s lack of unsound budget practices, it makes sense to start bailing on Finnish banks. The contagion knows no bounds. If everyone’s hiding in holes in the ground, then the economy’s going to collapse no matter what the budget deficit is.