Waiting For The Other Shoe To Drop

All was sunshine and happiness for a few short hours earlier this morning, following news that Greece’s conservative New Democracy party had won yesterday’s election, and will attempt to form a pro-bailout government with other parties. The radical left’s threat to the country’s euro membership has subsided. The euro initially rallied over $1.272, but has now fallen back sharply on the back of a continuing rise in Spanish bond yields, which reached as high as 7.1% earlier. The Italian 10-year bond is creeping back towards the 6% mark. Gold and silver came under selling pressure when news of the election results first broke, though both have recovered and remain basically where they were on Friday.

To paraphrase Roger Waters of Pink Floyd fame, all in all the Greek election just looks like another brick in the wall as far as market action is concerned. So it seems likely that the eurozone will continue muddling along towards greater fiscal union, with interest rate cuts and increased money printing from the European Central Bank to sweeten the PIIGS’ austerity diet. When push comes to shove, the people of the eurozone periphery want to stay in the euro more than they want to reject Brussels’ austerity drive.

If (and it’s a big if) we get some relative stability in the eurozone as a result of this election, we could see attention start to focus on debt and deficit problems elsewhere. The United Kingdom continues to skate on thin ice (the country’s total debt as a percentage of GDP, public and private, being the highest of any major economy). Meanwhile the US economy is slowing and Washington looks like it’s heading for more debt ceiling squabbles before November’s elections.

It’s not too late for people to save their financial skins. But it soon will be. Robert Filtzwilson provides an apt quote in a new King World News interview: “A senior officer in the London Fire Rescue Service was quoted as saying, ‘When people die in fires, it is not because of panic, it is more likely to be the lack of panic.’ The reality is that people generally look to their peers, waiting until the group panics, and by then it is too late.”