Deutsche Bank: 'If Merkel doesn't budge, our investment advice is to dig a hole in the ground and hide.'
This quote is pretty unbelievable when you consider the source. International bankers don't normally make flippant jokes or usually fool around, and the warning he is giving - that unless Merkel relents and allows the central bank to purchase sovereign debt from peripheal nations - the consequences will be catastrophic.
Business Insider has the full quote from Jim Reid:
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.
Merkel - and by extension, her coalition - is terrified of exposing the German voters to this kind of risk. Face it; at this point, it's Germany and France who are holding the EU together and we're not sure about France. She will probably resist as long as humanly possible until she has no choice but to relent.
You can't blame her. Not even the ECB would be able to bail out Italy, or Spain, or France if it came to that. Her plan - being resisted by many EU members - might actually work; cut the sickest debtors loose and reform the euro zone with only the strongest economies. It destroys the idea of a "United Europe," but it saves the Euro. This would be a bitter pill for Germany who has been the #1 champion of an integrated Europe since the end of World War II. But everyone knows that Greece and a few others are doomed no matter what the central bank does. Better to cut your losses and reorganize along more realistic lines.
That's what Merkel is holding out for But it won't come to pass before the real crisis hits which means she either allows the ECB to save what it can by buying sovereign debt or the whole European Project goes down in flames.
In the end, she'll give in.