December 8th, 2011
02:40 PM GMT
London (CNN) – The future of Europe’s single currency hangs in the balance, interest rates are moving and the debt crisis threatens to trigger a recession next year. Faced with such uncertainty, there’s only one option left for traders across London’s financial district: Look on the lighter side.
One broker sent me an email this morning suggesting Sir Alex Ferguson was now advising German Chancellor Angela Merkel and French President Nicolas Sarkozy on their European exit strategy. His message - sent in jest - poked fun both at Manchester United’s shock departure from the Champions League and the bailout fatigue setting in among Europe’s biggest economies. Jokes aside, the point is even the strongest teams can face relegation.
That’s a concept the leaders of France and Germany have become more familiar with in the past few days after ratings agency Standard & Poor’s cautioned it may cut their coveted AAA credit scores.
Make no mistake, as Europe’s 27 heads of government gather for this year’s final pow-wow in Brussels, they are playing a dangerous game and the stakes couldn’t be higher.
More than 330 million people have abandoned their money in favour of the euro, banks have billions of eurozone bonds on their balance sheets, and the single currency prices nearly a quarter of the world’s foreign currency reserves. They owe it to millions to come up with a lasting and credible solution.
The eurozone’s sovereign debt crisis has unseated five governments and caused three countries to be bailed out.
The gloves have come on and off at various stages as politicians debate how best to deal with the issue - and yet the propensity for domestic interests to hijack the Brussels negotiations remains significant.
Although Germany and France have set out a five part plan this week to tighten the block’s rules on budgets, senior eurocrats tell me we won’t know until late on Thursday whether the new proposals will apply to the entire EU or just the 17 members sharing the euro.
One EU official said the decision would likely involve some hefty lobbying and may well be made "over coffee and cognac."
And that’s just the first hurdle they will have to overcome.
Standing on the sidelines as unofficial referee is European Central Bank President Mario Draghi, announcing his second rate cut within the first few weeks of his tenure. A bold move certainly but the ECB has been loath to bend the rules.
Draghi now says the bank may delve into its toolbox, presumably if EU countries can present a united front.
It better do soon, or else monetary policy makers and politicians alike will be entering 2012 having already scored a hefty financial own goal.
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