The key thesis is that the market turmoil in Europe represents a struggle by the Euroland polity to leash the banks and force them to take losses. These guys seem to think that greater integration is inevitable and that the Euro will survive. The results of the recent elections in Berlin certainly support the view — with a “Leftward” rejection of the euroskeptic position of the FDP — that the public wants to continue the integration project, but presumably not being held hostage by finance capital.
But if taxpayers have to bailout sovereigns and private capital takes massive haircuts, the effect on growth will be severe unless interest rates are cut drastically and the ECB prints. This would send the euro towards dollar parity, at least until the federal budget talks crash in Washington. And export more of the strain to China.
So it looks like a race to the bottom. Maybe the Europeans are biding their time waiting for the Anglo-American train wreck to become visible to all. Certainly GEAB’s view that November-December in Washington will be chaotic as the supercommittee takes over the stage sounds about right.