Home > The Merk Perspective > Merk Insights > May 19, 2010

Merk Commentary: Euro Focus on Fiscal Reform, not BaFin

Axel Merk
May19, 2010

Axel Merk, May 19, 2010

Tuesday evening after European market close, the German banking regulator BaFin announced ill-defined rules, presumably aimed at curbing speculators. In the absence of clarity, selling the euro was used as the proxy to protect against what the announcement may have meant. In the morning, it became all too apparent that the rules have little substance. The government may have agreed to the announcement to seek political cover for the €750 billion bailout package discussed in parliament.

Both the substance and the timing of Germany's regulator BaFin reflect more on the regulator than the process for European fiscal integration. Attention should be focused on German finance minister Schäuble's proposals due later this week for comprehensive reform on fiscal coordination in the eurozone. Given that Germany has to agree to the €750 billion loan program, Germany has an unprecedented opportunity to achieve most of its agenda.

While the euro rally may be a short squeeze, the timing may well more have to do with the panic selloff Tuesday and the potential for better news for the eurozone in the near future.

We would like to challenge anyone to find constructive information that has ever come out of BaFin; the only thing this body seems able to do is to investigate insider trading; even there, BaFin's track record is questionable at best.

Axel Merk
President and Chief Investment Officer
Merk Investments, Manager of the Merk Mutual Funds

This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment security, nor provide investment advice.

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