As self-imposed Euro Zone austerity leads to recession the political face of Europe may be about to change. While authorities try to deal with the so called PIIGS debt crisis voters seem likely to express their dissatisfaction with things as they are. The Euro Zone debt crisis is three years old. The problems of the Euro Zone have affected economies across the globe. China, for example, is seeing a decrease in manufacturing as Euro Zone austerity leads to recession and fewer purchases of Chinese products. After the painfully slow Greek bailout, and European Central Bank cash infusion, things, briefly, looked hopeful. However, the Euro Zone bailout package consequences are coming home to roost as the Central Bank bailout money has been used and Euro Zone austerity leads to recession. Stock traders may well see a fair amount of volatility in Euro Zone stocks and stocks in markets throughout the world as political volatility drives market volatility in the Euro Zone.
The Recipe for European Debt
In the run up to European Central Bank loans to Greece this spring the various solvent members of the Euro Zone demanded that Greece cut back on government benefits, including pensions and health care. Although Greece eventually complied the prices were riots in the streets and an anemic economy that may spell disaster by the next time that Greek bonds come due. Along the way credit rating agencies downgraded debt in more than a dozen nations in Europe. The response was to institute austerity measures across the board. This is likely a good idea in the long run as it helps reduce the tendency of politicians to buy votes with programs paid for with someone else’s money. In the near term, however, this policy reduces money supply across the Euro Zone and thus this Euro Zone austerity leads to recession which is what is predicted for 2012.
Voter Discontent in the Euro Zone
The bigwigs in Paris, Brussels, Bonn, and Berlin have thrashed out a monetary solution to the current Euro Zone debt dilemma. The issue of who is paying for what has not been lost on voters across the more solvent members of the Euro Zone, especially Germany. Citizens of those nations with healthier economies are coming to resent the fact that they are backing the debt of the so called debtor nations of the EU, with their taxes. Leaders in Germany and France understand that the European Union is a Common Market as large as the USA. This market, or free trade zone, makes internal trade easier and more lucrative. Thus leaders have cautioned against letting debtor nations such as Greece, Portugal, Ireland, Spain, and, especially, Italy go their own way. The price of this decision may be that the European leaders who led the EU in its efforts may be out of a job courtesy of voters. Traders should consider this in deciding on trading US stocks versus Euro Zone stocks .
Trading Stocks as Euro Zone Austerity Leads to Recession
The fundamentals are that the Euro Zone is heading into a recession due to strict austerity measures and accumulated debt. However, the situation may well be very fluid in the coming year if major players in negotiations are removed from the scene via voter discontent. Technical analysis may be more important than fundamentals in assessing market sentiment and stock price direction in Europe and elsewhere. And as Euro Zone austerity leads to recession reduced manufacturing in China may be compounded by a collapse of the real estate market and the slow US recovery may be imperiled by events surrounding the fall electoral campaign.
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