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Greece & Austerity: The Ongoing Market Migraine

COMMENTARY–ProspectingJournal.com–Thank you Greece and Europe for another day that has only exasperated uncertainties. First, European leaders fret over finalizing austerity measures as a major condition to the bail out package for Greece.  After spending an unnecessary amount of time on their part, the ball then rolls over to Greece’s court. But hold on, today we realized they don’t in fact want to play.

What would have temporarily soured Europe’s     effect on global stock markets has in fact backfired completely; with yesterday’s scheduled talks between finance ministers cancelled based on growing concerns about Greece. Why? Because Greece has failed to put pen to paper and formally commit to cutting costs. And now, again, we are at step one.

 

 It’s not like there’s any rush. There is all the time in the world until March 20^th; the day Greece has to repay 14.5 million Euros in debt repayments or face default. But that’s not even the real deadline. Wednesday has ended with Greece forcing some market recovery by declaring they will in fact formally commit, with ministers now due to meet on Monday. But Greece has also said it must begin a debt swap deal with private sector bondholders by Friday if it is to meet the March 20^th deadline. Am I missing something here?

So without further ado and barring mention of the others (Portugal, Italy, Spain) I hereby declare the European debt crisis as the most certain uncertainty on earth. In a best-case scenario where March 20^th passes without headache there is still reason to be skeptical. Greece will enter elections and the one candidate considered an election forerunner has been providing rhetoric entirely against the austerity measures. Play in the potential election of Francois Hollande in France and suddenly the long term compactness of proposed fiscal measures are all but guaranteed.

And that, unfortunately, may continue to translate into our markets. David Katz, principal at WeiserMazars LLP, says he “long[s] for the days when markets traded on fundamentals”. The past few weeks have seen the Greek debt crisis ripple into markets and amongst Katz many others believe it has been a long time running since trading hasn’t been based on emotions. One glance at Wednesday’s market jumps amidst considerably minor news headlines gives his words credence.

Fortunately, there are causes for market optimism elsewhere that will likely act as a significant cushion to the debt crisis. US stocks have rallied this morning amid stronger than expected economic data and the US economy appears to be entering a healthy run. Meanwhile Japan’s central bank surprisingly announced it would purchase more government bonds, and amid expectations of a weakening yen the number of Japanese exporters have surged. Brian Barish, president of Cambiar Investors LLC, notes, “the U.S. economy is doing pretty well. Taking the possibility of a euro-Lehman type of event off the table and getting European debt markets functioning decently again, that has a big effect on sentiment”.

In the long run European driven uncertainty is likely to persist into key upcoming elections, but much will rest on Monday’s re-scheduled meeting between finance ministers. If both sides show up to play look for markets to rebound amidst promising economic data from the United States and Asia.

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Jason Staeck
ProspectingJournal.com

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