Trading the Markets After Greek Election Number 2
So the Greeks went for the painful austerity rather than risk the unknown 'wasteland' outside the Eurozone.
For all of the horror stories, it must be pointed out that quite a few countries across the globe manage to exist without being a part of the single currency.
Our spread betting and CFDs
clients are initially wondering if the overnight move is going to repeat the events of last Monday. The euphoria surrounding the Spanish bailout lasted only two hours before markets dropped off again.
Unfortunately, underlying all of this is the unpalatable fact that Greece is just an extreme instance of a general European problem. The developed world just has too many liabilities and too little income to pay for them.
Germany, virtually the only major solvent economy in the West, must be wondering what it has tied itself to.
The simple fact is that, over the last 30 - 40 years, Europe, and the UK for that matter, has built up calls on its purse that cannot possibly be afforded.
We all know this, but we attempt to tinker around the edges to somehow make the numbers work for one more turn of the wheel.
Unfortunately, we are faced with aging populations, more dynamic competitors out of the developing world, a reliance on imported energy, a huge weight of social benefits and the dead hand of regulation.
These, amongst many other factors, are all holding back investment and there is just no easy route out of the problems. And democracies are always bad at making the hard decisions.
Whilst the Germans have proved themselves to be fiscally sound, there must be some limit as to how much they will sell their own future to support the current plight of other people.
With governments looking for extra sources of revenue, the corporate cash pile must be looking very attractive just around now.
There is something of a limit as to how much head office relocation can reduce your local liabilities. As a result, the Irish 12% corporation tax centre is unlikely to prove a haven for too many corporations.
The left leaning Greek opposition indicated that company tax levels were a target, I fear that this is not going to be an isolated attempt.
The fact is that most tax payers do not own stock and so do not really care where the markets go. Taxing the major conglomerates for revenue made within their borders, and disallowing any offsetting 'investment', must be high on the list of targets.
Analysts and investors are well aware of this possibility which could well act as a dead weight in the medium-term.
Currency Markets Match the Stock Market Blow-for-Blow
The currency markets
have matched the indices
blow-for-blow this morning, with the euro rallying 100 points initially, only to give it all back.
I tend to find myself in a very small camp over this. In the long run, I think that the euro would rally if the Greeks had been kicked out. Not the other way round.
Keeping them in only serves to weaken everyone else. Consider that most people would accept that a structure is only as strong as its weakest point.
With the Greek default and bailouts, other nations know that they will always have a lender of last resort and so will shy away from the really critical reforms.
For all of Germany's power, it is only one nation amongst many and 'the many' will eventually drag down 'the one'.
The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest and nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.
By Simon Denham, 18 June 2012