Budget Disappoints or Europe Tumbles.. The real Truth...?

Over the last 2 days the Indian markets have fallen by around 7% after rallying the whole of the last week. The reason as they say on CNBC is that the interim budget has disappointed, the fear of a global recession strengthens and a weakening Euro.

But are these reasons new...? Something which was absolutely unexpected and came as a big negative surprise for the markets and they tumbled...? The answer will be a big NO.

The budget disappointed because the expectations were unjustified and anyone with basic knowledge of macro economics would have said that budget will disappoint as the government does not have enough funds to disperse more stimulus. I had already mentioned the same in my earlier blog that the interim budget "Too Many expectations"

The crisis in Europe was also foreseen as the bond yield started to widen (check my earlier post) and the fear of global recession strengthening is just a lame excuse every time these anchors could not justify the fall in the markets.

I believe and will say again that the biggest threat is coming from European side. Yesterday the German finance minister became the first senior policy maker to broach the topic this week, saying some other 16 euro nations are “getting into difficulties” and may need help. French officials are also concerned about crisis as the cost of insuring Irish, Greek and Spanish debt against default rises to records and bond spreads widen. The bailout which is not a mandate as per the treaty, I believe will see the face as the mighty Germans and French can not leave the smaller countries default and hurt their common currency since the treaty says

that EU nations can grant financial assistance to a member state if a country is“threatened with severe difficulties” caused by “exceptional occurrences beyond its control"

Thus I would again say that the bigger threat is Europe and the events like budget or a GM/Ford needing more money to survive is a media gimmick to divert the mass attention from the grave crisis.