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The Election’s Over, but Europe’s <br>Difficulties are Not

by | published June 18th, 2012

The Greek election yesterday brought a brief reprieve as a nation and the common European currency stepped back from the brink.

But, from the view this morning, little has changed.

Yes, the Eurozone has survived its latest test, yet there is little indication where it will go from here. Considerable continental support for the common currency remains, and EU officials will soon introduce initiatives to consolidate banking and financial policy in the European Union.

Still, the problems keep mounting, and there is very little resolve here.

At this point, there are a lot of actions (or lack of actions) that could still upset the entire apple cart.

Greece must now form a government, gain widespread acceptance of tough austerity measures, and wrestle with widening unemployment, pension shortfalls, and reduced government services. Anger will not subside, especially with more than 50% of the nation’s youth without a job. With prospects still looking bleak, the streets will not be any calmer.

The pro-bailout New Democracy party and its leader, Antonis Samaras, now need to form a majority coalition. Samaras must start his day today with the No. 2 vote winner, Alexis Tsipras and the far left “let-the-rest-of-Europe-go-to-hell” Syriza party.

Tradition requires that the primary vote earners discuss forming a government first. Tsipras may relent on using his newfound political strength in the interests of national unity, but I wouldn’t count on it. The former communist student organizer has another agenda in mind.

Samaras and his conservatives will probably end up forming a government with the socialists. That is, itself, a clear statement on how disjointed European politics has become.

This morning, New York trading will take some profits from the run up last week and Europe will shrug off an election that has decided nothing to focus on the next sick patient – Spain.

Actually, what is happening there has been on the radar for some time.

With 10-year Spanish bonds yields in excess of 7% as I write this, and the Spanish stock exchange down triple digits, the bailout provided only one week ago now seems utterly insufficient.

It is becoming evident that the EU financial markets and a weakening banking sector will not be able to stem this rising tide.

Something more needs to be done.

The Myth of American Isolation in the Global Markets

Make no mistake.

All of the rhetoric floating around about how insulated the U.S. markets are becoming to the affairs of Europe means very little. Yes, America is better situated and possesses a remarkable engine for generating return. However, if Europe starts to slide, the U.S. will be moving in tandem with it.

Global markets need a European fix, but any genuine solution is likely to take some time.

Still, there are some matters beyond dispute.

For one, despite the problems, European prospects (and thereby wide areas of investment elsewhere) are much worse off without the euro. Greeks may widely disagree as to what policy comes next, but polls consistently indicate that 80% of them want to remain in the Eurozone.

For another, looking at the widening interest rates and declining stock markets one country at time fundamentally misses the point. The EU has reduced the meaning of national borders, especially when it comes to finance.

That means this is not a Greek crisis. Nor is it a Spanish, Italian, Irish, or Portuguese crisis.

This is a European-wide crisis.

And when a continental-wide currency exists, the fever will show up there. Unfortunately, the centralized apparatus to attend it is insufficient.

The focus now, therefore, is on the relationship between two very different institutions. The first is the European Central Bank, and the second is the European Council.

The ECB will need to inject additional liquidity into the Eurozone – and rather quickly at that. We may debate the overall propriety of stimulus projects, but without another dose now, Europe (and American) investment prospects are in for tough sledding.

The bank knows that, but it will resist for one simple reason that brings us back to my point earlier. Without resolve and a concerted plan of action stimulus programs merely move money from one place to another, ultimately contributing to little more than a rise in inflation.

ECB head Mario Draghi has already warned the EU that it should not expect his bank simply to cut checks (sorry, this is Europe; that should be “cheques”). He has moved the ball into another court.

He has framed it (quite rightly) as a European Council matter. That body comprises the heads of state from EU members, and they are set to meet again at the end of this month.

The EU has reached a crossroads. It survives (along with its common currency) only by further integration. Retaining the quaint nationalistic customs of European postage stamps is endearing, but whether they are standing in a crowd before the Parliament in Athens or in a Madrid unemployment line, the average citizen is exhausted.

And getting angry.

There is a reason that Tsipras catapulted to political prominence in Greece or François Hollande’s Socialist Party followed up his presidential victory in France with a solid parliamentary majority in the other European election held yesterday.

The heads of state must act, and decisively. If they continue to debate how to most effectively throw one or another under the bus, we are in for a long and agonizing journey to a fractured Europe.

That development will hardly play well in Berlin, Paris, or Rome.

Or Peoria, for that matter.

That being said, if you’re looking to make a move in these conditions, sit tight. First and foremost, we need to be patient until greater stability emerges in the markets.

Sincerely,

Kent

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  1. walter iwaniw
    June 18th, 2012 at 13:18 | #1

    What is wrong with people?? They rely upon the same formally educated culprits who created this mess with easy money additudes, greed and corruption by bankers, govt, and big business in the same cancerous cell of grow grow grow money money. THE THRUST HAS BEEN MORE MORE MORE NOT QUALITY, TRUST,HONESTY. THE GAME NOW IS TAKE WHAT YOU CAN STEAL ROB LIE CHEAT GET YOUR SHARE OF THE PIE BEFORE IT IS ALL GONE. THERE IS NO RESPECT LEFT TO GOVT, BANKERS, WALL STREET,BIG BUSINESS, WE NOW HAVE TO ACT LIKE THE POLITICIANS AND LAWYERS NO TRUST LEFT

  2. June 18th, 2012 at 13:30 | #2

    The beat goes on and all that’s being done is to postpone the inevitable.
    Defaults and currency collaps lie ahead and those who hold silver and gold will be able to weather the coming storm.

  3. Lucinda
    June 18th, 2012 at 13:51 | #3

    Sir:
    You have been adamant in your projections that oil prices will rise when the July 1st Iran deadline arrives; however, this is not reflected in oil futures, much less in oil and oil-related stocks.

    Please explain.

  4. eric taylor
    June 18th, 2012 at 14:04 | #4

    They are so decentralized-fragmented in the European Union that only
    sovereign countries, similar to our states in the U.S.A., could pull
    their respective countries banks into receivership, and be placed
    into a more restrictive regulatory environment that would remotely
    be considered true reform, in the sense of America’s Great Depression;
    Which has put me on the fence for solving the European bank debt problem. I wish them a little more than good luck in solving their
    dilemma, whatever the outcome.

  5. Michael Hutchison
    June 18th, 2012 at 14:41 | #5

    Hey Kent, How ’bout that $200 oil? You sure have been quiet!

  6. Peter
    June 18th, 2012 at 15:04 | #6

    Please advise on the rumor that Obama has negotiated an oil output and corresponding price decrease to last through the election at which point, after he is reelected, oil price to rapidly increase to here-to-fore never higher levels.

  7. Jean Lariviere
    June 18th, 2012 at 15:04 | #7

    Dr. Moors,

    Do you suggest to invest some money in a bear energy commodity stock like HOD.TO (Beta Pro Horizons crude oil bear).

    ThANKS

  8. Jean Lariviere
    June 18th, 2012 at 15:30 | #8

    Dr. Moors,

    Do you believe crude oil can go down to 65$? Just a guess with a % of probability please.

  9. Jim
    June 18th, 2012 at 16:37 | #9

    A quick though on the current price support for oil. IMO, we are very close to a floor, given OPEC’s need to meet certain minimums to prop-up their various constituencies/countries. The Saudis hold the capacity trump card, and have their own needs for price support. Add to this the potential for supply constriction as a result of an Iranian Embargo, and it appears to be an opportune time to buy O&G stocks.

    Dr. Moors, as regards the potential for Europe’s negative consequences impacting global demand, and thus the price of oil, are you suggesting by your following comments, “…if you’re looking to make a move in these conditions, sit tight. First and foremost, we need to be patient until greater stability emerges in the markets,” that we hold off on buying O&G stocks, as well?

  10. Bob
    June 18th, 2012 at 17:37 | #10

    @Jean Lariviere
    The last time oil was at $.65 p/b was 55 years ago. What planet do you live on?

  11. June 18th, 2012 at 18:32 | #11

    The fallacy in this article is that a common currency is required for a common market. That is demonstrably untrue, as the common market existed long before the currency, and will continue after the currency is gone so long as it BENEFITS Europeans instead of simply creating another organism that steals from them. Free trade is good. Free access to the wallets of European citizens is not. It really is as simple as that.

  12. Adrian
    June 18th, 2012 at 22:35 | #12

    I’m curious as Lucinda…you have predicted 125/barrel oil in July…and we cannot even get to 90!!! But you have not addressed anywhere this BIG miss nor have you provided adequate explanations for it, nor where the real bottom is (some forecast 65-75 and that we could stay in the 60-90 dollar range until year end). It seems to me you gotta take the hit and update on the situation. We can figure Europe on our own. You are supposed to be the energy expert. Thanks!

  13. eric taylor
    June 19th, 2012 at 16:39 | #13

    There has been some speculation from Greece, of all places, that
    it would be good if Germany left the E.U. currency; the reasoning
    goes the Euro would fall and stabilize at good exporting levels,
    and Germany would fall a little, and then reassert it’s relatively
    strong economy for its old Deutsche Mark, of which you should gladly
    sell everything you got to buy into their underlying Bonds!?

  14. June 21st, 2012 at 12:29 | #14

    We are bound to go to hell on account of socialisme and syndicalisme. Since decades their study services are preparing the arrival of MODERN COMMUNISME. They have ruined all economies and made false prosperity bij making huge debts which can not paid back. People has run in and will not refrein. We are at the edge of revolution and that is the moment that socialisme and syndicalisme will take full control over every thing and every one

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