ECB comments to save the Euro are coming up short

A few weeks ago I made a comment about how a court ruling snag in Germany would prevent the Eurozone from using the EFSF or the future ESM to be able to buy Spanish and Italian bonds. The ECB comments last week appear to be false as they wait for court rulings due in Germany on September 12, 2012. In addition all 17 members of the Eurozone need to approve a change in the rules to allow sovereign bond purchases by the EFSF or ESM. Do not look for the ECB to act until all countries agree.

Investors will start to realize that not all countries in the Eurozone will agree to bail out weaker nations soon.  Please read the interesting article from CNBC for further details.

http://www.cnbc.com/id/48456183

The main points are as follows:  A final decision would follow after September 12, when Germany’s top court rules on the ratification of the ESM, which will replace the existing EFSF, the paper said.  Analysts point out that there are significant obstacles to such a move. The ESM cannot come into force until Germany approves it. “This is all speculation which is completely unjustified at this stage,” Alistair Newton, political analyst at Nomura told CNBC.

In addition, all 17 euro zone members would need to agree to such a move, and the Dutch and Finns have already expressed their reluctance.

Floating Trial Balloons

The markets around the world seem to be waiting on further steps by European officials to stop the banking crisis gripping the area.  Many” trial balloons “ have been floated by the media over the last week ranging from a E.U. banking unification, IMF bailout of Spanish banks, use of the ESM, another LTRO round by the European Central Bank, direct Spanish aid to their banks by issuing bonds, and the potential of Euro bonds being issued.  Pick your favorite story and investors will jump back on the potential solution(s) as a reason for a short-term rally.  I look for the market to continue to decline as the S&P 500 has broken below the 200 day moving average late Friday.  While a bounce back above the 200 day is possible, the relief rally should be used to sell as I still expect the S&P 500 to continue to decline to around the 1213 level. I made a rough calculation using an equal point total decline to the last wave down.  I look for a bounce after the level is reached.