Euro Crisis? I Spit On Your "Crisis," Speculators

Well, you could see this one coming: I generally pooh-pooh arguments that Europe's common currency is as vulnerable as the US dollar. As I've said again and again, the troubles of Greece are real but were blown out in all proportion to the challenges faced by the Eurozone. The main difference is, when push comes to shove, the EU will rein in recalcitrant economies, while the US is free to do its usual practice of running ever-larger deficits to fix problems caused by running large deficits in the first place. In the end, the ever-stoic Germans will not let the project of European integration be cast asunder by serial fudgers of previous Greek administrations and other riffraff. In America, of course, deficit-addled riffraff run the show who would like nothing more than to put one over you. Even "Washington Consensus" fanatics of years past become deficit lovers in the weird universe of Washington.

At any rate, all I want to point out is that, yes, the euro is mounting a fairly impressive comeback in hopes that the Greek authorities have finally decided to put their foot down on fiscal folly by actually cutting down on government excesses. The hourly chart above shows a healthy bounce in the common currency. After briefly dipping below $1.3450, it has since rebounded past the $1.37 mark. Other signs of easing abound:

Greek sovereign debt jumped on Wednesday after the country announced an additional €4.8bn ($6.5bn) in cuts to its deficit. George Papandreou, prime minister, announced the new austerity programme, the third in three months, in the hope of impressing on other members of the European Union that it can rein in its massive deficit.

The 10-year bond yield, which has an inverse relationship with the price, shed 12.8 basis points to 6.038 per cent, its lowest level since February 12...Meanwhile, the spread or difference between the Greek 10-year note and that of the equivalent German bund narrowed to 291 basis points, its lowest level since February 11.

Yields on Greek 10-year bonds have now fallen from about 6.7 per cent to below 6.04 per cent in the past four days, helping with the country’s short-term cash flow. But bonds worth €20bn mature in April and May, meaning Greece will have to increasingly look to the markets. The government said the new cuts would be achieved by higher taxes on fuel, alcohol and tobacco, while VAT was also being lifted. Meanwhile, it would also make cuts to public sector wages.

Also, the IMF has given a seal of approval to Greece's plan of action. A few days ago, yours truly called for a euro bottom because dollar sentiment was hitting highs unseen since last year in US currency futures markets. Well, I'll be damned if that's not what's happening at the moment. Meanwhile, another recent post was concerned with how the sovereign CDS trading was about to be curtailed. There apparently is a feeding frenzy of sorts as those speculating in this instrument are loading up before mooted legislation to limit trade in these instruments comes into effect. The UK's top financial regulator, Lord Turner, is on the case:

Hedge funds are raising their bets against the euro amid growing fears of a regulatory backlash against their trading positions on the specific sovereign debt of Greece and other weak eurozone economies. Many of the world’s biggest hedge funds have become increasingly concerned about fierce criticism by European politicians that their country bets have heightened the crisis of confidence in some markets...

While playing down the effect of so-called “naked” purchases of CDS – buying credit default protection without ownership of the underlying bond - Lord Turner said that a ban on speculative purchases “is something that should be discussed”. He said: “It may be that even if you banned it, it wouldn’t make a big difference [but] there are questions as to whether you should be allowed to take out an insurance contract where you don’t have an insurable interest”.

So once more, I spit on your Euro-crisis, Eurosceptics. Be my guest and bet against the common currency. It utterly befuddles me how any person with common sense would prefer dollars to euros. Entrusting your money to an economolester seems like the road to hell to me and many others and recent moves seem to verify this common sense conviction.