Current market turbulence is two-sided. One concerns doubts about the European debt crisis and the Eurogroup?s ability to deal with it. The other is a possible payment default from the United States, which could happen on August 2 if disagreements about raising the US debt ceiling remain deadlocked on Capitol Hill. In Europe?s case, last Thursday?s summit was able to temporarily calm market turbulence and risk indicators.
Many points are still up in the air, because the slow cogs of the EU have not successfully warded off the risk of spreading crisis to other peripheral countries. With regard to the United States, the markets are warming up, but they might catch on fire if democrats and republicans cannot arrive at an agreement that rests on defining new budget plans. The republicans, who maintain a majority in the House of Representatives, are only allowing a raise in the debt ceiling if it is paired with greater spending cutbacks. And the democrats are aiming for adjustment based on tax increases.
President Obama is trying to reach a pact even at the expense of terminating a deficit reduction program that integrates elements that leave everyone happy. Market duplicity is whetting itself on the two focal points mentioned above, because if they lead to a recovery, then the following issue will be raised again: getting out of a debt crisis makes the return to growth especially painful. It can be even more painful if it the markets are sounding loudly and from both sides of the Atlantic.
