It’s hard to imagine that Europe’s economic situation could become more uncertain but you have to hand it to the Europeans, they figured out a way. The “left” is taking control of the political leavers in Europe, and the response was somewhat unexpected. The markets did not react negatively to the elections in France, and Greece last weekend. Pundits on Wall Street are suggesting they have already built in the outcome of the elections. It’s seems somewhat odd that the markets took the elections in stride given past responses to the European crisis. Ah, but that was on Monday. By Tuesday the markets started to react as investors finally took note. The delayed reaction was surprising because recent history suggests that the markets will respond negatively to all things Europe. Manchester United loses 1-0 to Bolton; the Dow and TSX down 200 points.
The stock market aside, this wasn’t a good week for Europe. Some economists are suggesting that Europe is once again in, and heading towards another deep recession. Last month Europe’s aggregated economy contracted. Spain now holds the dubious distinction of having the highest unemployment rate of member countries in the EU. It’s estimated that one in four Spaniards are unemployed today. You know Europe is teetering when Germany and France’s economy has come to a sudden halt. The population of Europe is looking to punish someone for the mess there in. The first big shoe to drop was in France.
There’s a new president elect in France. President Hollande is a left wing ideologue. He exploited the mood of the French population, and convinced them that they could tax and spend their way to prosperity. He convinced the French population that France could recover without having to impose deep austerity measures. France’s new president wants to move from transatlantic agreements and focus more on member countries of the EU. This will impact Canada. The Harper Government has been negotiating with the EU about a new free-trade agreement but now that Hollande is controlling one of the leavers the free trade agreement may not come to pass. At the very least it might be put on the back burner. France is not the only country to move to the left. Greece, they’re back. Yes, a new government was elected in Greece last weekend, one that promises to spend their way out of debt. Correct me if I’m wrong – but I think that way of thinking contributed to mess they’re in today. It’s worrisome to see the direction Europe is headed in. But I also understand when people feel hopeless, confused and desperate, the impulse is to roll the dice and hope for a miracle. How much worse can it get?
It can get worse, a lot worse. What was unthinkable a year ago, countries defaulting, is starting to look more probable. The IMF will not put up with Greece if they attempt to increase spending. There may be no more bailouts, and if that was to happen there’s no way Greece could remain a member of the EU. There’s a real possibility that we’ll be witnessing history; rather appropriate given a number of countries in Europe appear to be history.
Until next time,