Yesterday, I shared my view that the European situation will probably be resolved, and the eurozone preserved, as the alternative could be a return to the conflicts that ripped the continent apart in the last century. The Greek elections were the latest crisis flash point, opening up the possibility of electing Syriza, a party that had pledged to reject the painfully negotiated bailout package.
The results of the election were more or less as expected. Syriza didn’t win, and the winner is working on a coalition government that will preserve the existing deal. Rather than eliminating the day of reckoning, however, the results will probably only delay it. The fact that Syriza came in a strong second, and even the winners are talking about renegotiating the existing deal, suggests that Greece will be back in the news shortly.
Overall, media and market reaction has been mixed. The crisis continues to be front-page news in the Financial Times, Wall Street Journal, and New York Times. Spanish bond rates remain above the red line of 7 percent, and Italian rates sit above 6 percent. Nonetheless, panic appears to have subsided, and equity markets are actually doing well, reflecting a sense that the problem of Europe has somehow been solved. European markets today are up, as are U.S. markets.
In that regard, the results of the Greek election have been somewhat counterproductive. While a sense of urgency was developing when it seemed the Greeks might pull down the whole structure, that pressure appears to have vanished, replaced by a renewed commitment to kicking the can down the road, which is strange. The underlying problems haven’t gone away; in fact, the bank runs in Greece and Spain continue, while Spanish and Italian bond rates remain high.
What may be supporting the markets is the expectation that the U.S. Fed, which is currently meeting, will pull another rabbit out of the hat. Or possibly that the G20 or the ECB—or someone, somewhere, somehow—will do something.
So now we’re on hold, in the confident expectation that Godot will show up. I hope he does—he promised he would! But he hasn’t come yet.
Perhaps tomorrow . . .