THE EURO FALLS: MARKETS WANT EURO-WIDE AUSTERITY, NOT BAILOUTS BY CENTRAL BANKS

BLOOMBERG:

The euro lost all of yesterday’s gains on concern the $1 trillion bailout will hurt European economic growth. Stocks fell, paring the MSCI World Index’s biggest advance in a year. Chinese shares entered a bear market.

The euro weakened 0.8 percent against the dollar at 7:09 a.m. in New York, trading below the level it was at before the European Union-led aid package was announced early yesterday. The Stoxx Europe 600 Index fell 1.8 percent, after rising 7.2 percent yesterday. Futures on the Standard & Poor’s 500 Index dropped 1.1 percent. Copper traded below $7,000 a metric ton.

The European Union’s unprecedented bailout package is unlikely to be a “long-term solution” for the region, Marek Belka, the director of the International Monetary Fund’s European department, said in Brussels yesterday.

... “The euphoria of 24 hours ago has passed,” Derek Halpenny, European head of global currency research at Bank of Tokyo Mitsubishi UFJ Ltd. in London, wrote in a report today. “We are in little doubt that steps taken will offer the euro little support and the aid package does not change the fact that Spain and Portugal in particular will still have to undergo further painful austerity measures.”

AND GOLD IS UP.

AS I WROTE YESTERDAY:

"We shall defend the euro whatever it takes," said Olli Rehn, the European Union's commissioner for economic affairs.

THAT'S JUST WHAT THE MARKETS WANTED TO HEAR.

NOW, ALL THAT REMAINS ARE THESE TWO HURDLES:

1. BRITAIN MUST ANNOUNCE A GOVERNMENT,
2. AND EUROPEAN NATIONS AND THE USA MUST CUT TAXES AND SPENDING.

YUP: ALL EUROPEAN GOVERNMENTS - AND THE USA - MUST CUT TAXES AND SPENDING FOR MARKETS - AND ECONOMIES - TO IMPROVE.

VIA GLENN:

A bold $1 trillion rescue by the European Union halted the slide of the euro on Monday and sent markets soaring worldwide in a gambit that may ultimately be seen as the moment Europe truly became a union.

The sweeping cash injection was greeted with euphoria on Wall Street, where stocks rocketed to their biggest gain in more than a year.

Still, the package did not resolve the basic dysfunction at the heart of Europe's monetary union: Governments can still spend recklessly and saddle their partners with the bill.

I EXPECT MARKETS WILL REMAIN IN A BASICALLY JITTERY AND BEARISH PATTERN UNTIL CAMERON TAKES OFFICE.

IF THERE'S A LIB-DEM COALITION I EXPECT EUROPEAN MARKETS TO CRASH.

STAY TUNED...