Fear Contagion – Who Is In Control In Europe

Fear is spreading throughout the markets today. Fear is spreading among government officials. Fear is spreading though business and corporations. Fear is spreading Bank to Bank.

With each hour, the possibility of a collapse of the EU becomes a stronger possibility. Merkel and Sarkozy, have an interesting proposition, a new treaty to solve future problems, but is it the right time to implement.

The markets are demanding immediate results and an immediate call to action. A new treaty however suggested, however presented will take a long time to implement and there is more and more concern that several countries will not be willing to sign such an agreement, many countries will need legislative approval, which could take a great deal of time. The question the markets are asking is how the EU will present a recovery plan when they do not have an agreement.

How will the ECB handle the situation, at present the Central Bank seems to have decided to act on their own, to implement a plan to protect the markets, avoid defaults and to maintain liquidity? The European Central Bank is expected to deliver its second rate cut in as many months on today. “The ECB will make no promises at its press conference on Thursday,” said Gilles Moec, economist at Deutsche Bank. European leaders need “to be as ambitious as possible on Friday. … Assuming a strong enough ambition and a broad enough consensus, we believe the ECB can increase its intervention thereafter.”

The hint has been credited with helping defuse tensions in the European bond market. Outright yields of Italian and Spanish government bonds have fallen sharply since Draghi’s remarks last Thursday, cutting the premium investors demand to hold peripheral government debt over German bonds.

Namely, investors will be looking for further clues that the central bank is willing to expand its bond-buying program after the ECB president last week told the European Parliament that “other elements might follow” if European leaders put together a credible “fiscal compact.”

With each passing moment, the likelihood of the euro failing becomes more and more inevitable; the likelihood of a breakup of the EU becomes a stronger possibility. The International Business Times reported the main news today was Germany trying to douse expectations for the EU Summit, via an anonymous official. That means that divisions remain and that European politicians may not be able to come together to agree on tough decisions in such a short timeframe.

Private and Public businesses are preparing themselves for the worse, the question is how do you prepare?

Gold  the safe haven has seen a rise on the daily chart and is currently trading at 1737.67 U.S. dollars per ounce, since the opening of trading at 1727.44 dollars an ounce. Oil has settled and is  trading near record highs, opening up to 101.25 dollars a barrel, and climbing since the opening of trading at levels of U.S. $ 101.31 a barrel.

Today’s Wall Street Journal: “An official said Germany was more pessimistic about the success of the summit than it was last week and said the European Financial Stability Facility and the permanent European Stability Mechanism, which is due to start in 2013, won’t run simultaneously, pouring cold water on earlier press reports. The official added that there were no additional resources planned for the ESM.”

Several economist say that this week’s meeting of the EU has the potentially of a make-or-break summit for the euro.