Okay, So Now Things Are Different Again

Since this might not be a pretty week for the market, let me start it off with something beautiful - Ireland. Driving around the countryside, meeting the people, having the people actually offer to let me into a moving lane of traffic, and enjoying the haute-cuisine has been a real treat. Save for the extremely narrow two-lane roads, the mischievous wee men clad in green, finding a pot of gold at the end of the rainbow, the Ireland I am seeing is the Ireland I thought I would see. It is beautiful, and I will be returning, no doubt about that ...

Shares, oil and other riskier assets slumped on Monday after elections in Greece and France saw incumbents defeated, raising fears the collective response to the euro zone debt crisis seen as crucial to holding the currency bloc together is fracturing.

I'll admit the election results, although expected, will dampen the confidence of investors in the ability of Europe to keep on track with its plan to resolve the debt crisis. That confidence will be further tested when Ireland goes to the polls sometime soon. On the ballot is a referendum to repeal Ireland's austerity program. If it passes, Ireland will reverse its programs and do what? In fact, what will Greece do now that the pro bailout coalition has collapsed?

Yes, I understand the fears that will soon arise, as these elections and others point to a new direction, but will things actually change, and, if so, to what degree? Looking to the positive (you know me), is it possible that the new thinkers coming to power might actually push the process forward?

The Merkel/Hollande initiative will never materialize due to Hollande and Merkel being polar opposites with no chance to agree on anything.

The quote above reflects one answer to my question, but this view is hard for me to swallow. The Merkel/Sarkozy "partnership" did what it needed to do when it needed to get done. It put the brakes on the escalating European debt problem, and it pointed to a way forward for the bloc. The focus then was on harsh austerity and little attention was paid to economic stimulation. The reality then is the same as now - governments have to cut deficits and reduce debt. Yet, that does not mean governments have to avoid any economic stimulation. In fact, it is a necessary step in the economic rejuvenation process, as Greece, Ireland, Spain, or any other country cannot survive economically if all they do is cut spending deeply. Along with that, they have to promote private enterprise, and throughout history, no agency of any country has done that better than government. If money is needed to pay off debt, people have to have jobs. Simply firing government workers and cutting spending on anything is not the complete answer and apparently the people in Greece and France know that.

Hollande in France and whatever coalition arises in Greece cannot reverse what has been done, unless they want total collapse of the EU and global recession again. But they can modify and soften the severe austerity and they can inject money into the system.

Let's hope they keep their eye on the ball. I think they will once they seat themselves in the power circle and begin to realize their options are limited when it comes to spending. The truth is, if the folks in these countries are unhappy now, wait until they taste economic collapse, and that is what will come if the newly elected governments think they can just go back to the way things were. No, once again, reality will place a frame around the process, and the steps forward will be different, but not catastrophic.

Trade in the day; Invest in your life ...

Trader Ed


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