Suddenly, There Are Reasons To Worry About Europe Again...
Thanks to the European Central Bank’s promise that it will backstop the government bond market, if necessary, the acute financial crisis from the past couple of years is basically over.
But there have always been risks.
For one thing, the economy is horrible, and people can only accept that before so long before society starts to tear apart.
And then there’s always been politics, and the worry that these governments will lose the support of the public, and be seen as corrupt. That’s what’s going on now.
In Spain, a country that’s always been one of the biggest worries, there are calls for Prime Minister Mariano Rajoy to resign amid a big corruption bombshell in a Spanish newspaper.
Via Email, economist Frederik Ducrozet of Crédit Agricole explained to Business Insider the overall cause for concern:
It looks bad for Rajoy facing such a massive pressure all of a sudden, mostly because no obvious alternative is available in terms of leadership. This also give Catalunia and other regions a fresh opportunity to contest central policies. And, of course, it happened at a time when activity is still very weak and a risk to fiscal sustainability. Italian politics are getting more unstable. EU cohesion could be more broadly impacted.
True, there is always the OMT backstop to cap any sell-off in Bonos but clearly we are approaching the danger zone.
Spain’s stock market (the IBEX) dived on Friday amid this scandal, the end of a short-selling ban, and bad bank numbers. There’s Italian politics. There’s the ongoing bailout of Cyprus. And then there’s the ultra-strong Euro ostensibly harming German exporters, who are watching their Japanese competitors enjoy a weakening yen. This week there’s an European Central Bank meeting. Should be interesting.