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Cramer: Europe Is Playing a ‘Game of Chicken’

“Right now we’re at the mercy of the largest game of chicken that I can ever recall,” said Jim Cramer on CNBC’s “Mad Money,” making a reference to how policymakers can’t agree on how to solve Europe’s debt crisis.

The Germans currently control the purse strings and aren’t likely to give that power up anytime soon, Cramer said. It seems the rest of the eurozone, however, is pushing for stimulus. Given the economic troubles in Greece, Italy and Spain, most European leaders think bonds should be printed and money spent so that all of the Continent’s economies can grow, not just Germany. It was the hope for stimulus allowed stocks to rally more than 1 percent across the board Tuesday to close near session highs.

“Traders in this country simply cannot afford to miss the moment when Germany blinks and sacrifices its own interests to save the rest of Europe, something that’s perceived as inevitable now that the French have turned on the Germans and the Spanish bond market’s imploding,” Cramer explained. “Today was a hope day, a day when people expect the Germans to blink, in part because of the hopelessness of Spain, but also because even Germany’s worried about the world economy right now.

“I think the Germans are concerned that China’s going to slow if it can’t tap the European market and that’s bad for the entire globe.”

Without Europe pulling stocks down, Cramer thinks the market is looking pretty good. Europe’s troubles have caused commodity prices to decline, helping a number of industries that benefit from lower raw costs, including retailers, restaurants and utilities. When Europe weighs on stocks, though, Cramer noted the tech, oil and banking sectors tend to lead the market.

“These are huge portions of the U.S. economy that are being held hostage by Angela Merkel, the German Chancellor,” Cramer said. “You have to believe that on some level, she’s even feeling the heat from the United States and China, which tire of her worries about hyperinflation at a time when worldwide deflation is the real enemy.”

Until Merkel changes her views and supports further stimulus, Cramer thinks many stocks could continue to fall. As the world’s economies continue to worsen, though, he suspects the Germans will change their minds. Until then, it’s a giant game of chicken.

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