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Europe’s “Slow-bleed Emergency”: Same Crisis, Different Week

Aaron Task
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Every week, it seems like there's some event that will "make or break" the European debt crisis. So why should this week be any exception?

On Thursday and Friday, Europe's heads of state will meet in Brussels for the European Union Summit. Ahead of the summit, George Soros yet again warned policymakers are running out of time to save the euro. (See: Stiglitz on Europe: Soros Is "Being Generous" Giving Them Three Months)

"I am afraid the summit could turn out to be a fiasco" if policymakers don't resolve their differences in the three days before the summit, Soros tells Bloomberg TV.

The famed financier put forth his own proposal to put Europe back on a sustainable path that would create a Europe Fiscal Authority (EFA), a debt reduction fund and Eurobonds.

But the biggest obstacle to real solutions is Germany, Soros writes Monday in a Financial Times op-ed entitled "How to Shift Germany out of a 'can't do' mode."

At issue is whether the Europeans can agree on tighter fiscal integration, including the issuance of Euro bonds and the creation of a true banking union. Ahead of the summit, Germany officials remain insistent they will not agree to assume the debts of other EU nations, unless they in turn give up some sovereignty over budget processes.

If this all sounds familiar, that's because this EU Summit is just the latest in a series of events heralded as critical to the future of the euro; yet, the currency bloc continues to limp along without resolving anything (or breaking up).

"I think the truly scary thing is we could be sitting here at this time next week having the exact same conversation," says Doug Hepworth, director of research at Gresham Investment Management. "It's a slow-bleed emergency."

Recalling the U.S. experience of the 1970s, this "kick-the-can" strategy can "go an awful long way," he says, suggesting Soros' three-day timeline is hyperbolic.

Gresham, which has about $13 billion of assets, is positioned "relatively defensively because you can't count on any sort of rationality out of this group," Hepworth says of EU policymakers.

With expectations for true progress ebbing ahead of the summit, markets were in "risk off" mode Monday morning -- and stayed weak after an expected Supreme Court ruling on Obamacare was delayed until later in the week. In recent trading, the Dow was down 1.4% while oil prices were down 1.6% to below $78.50.

Weakness in commodity prices is an indicator of market fears over deflation, Hepworth says. "But this market changes its bet every three months," he quips. "We'll be revisiting this."

While not a particularly satisfying answer, it does "fit" with the experience of anyone watching events in Europe in recent months, if not years.

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com.

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