The Greek election last weekend has brought us a brief reprieve. The nation and the Eurozone have stepped back from the brink.
But the larger truth is that little has changed.
Yes, the Eurozone has survived its latest test, yet there is little indication where it will go from here. Considerable continental support for the common currency remains, and EU officials will soon introduce initiatives to consolidate banking and financial policy in the European Union.
Still, the problems keep mounting, and there is very little resolve to fix them.
At this point, a lot of actions (or lack of actions) could still upset the entire apple cart.
Greece must now form a government, gain widespread acceptance of tough austerity measures, and wrestle with widening unemployment, pension shortfalls, and reduced government services.
With prospects still looking bleak, the streets will not be any calmer, especially with more than 50% of the nation's youth without a job.
The pro-bailout New Democracy party and its leader, Antonis Samaras, now need to form a majority coalition. Samaras must start with the No. 2 vote winner, Alexis Tsipras and the far left "let-the-rest-of-Europe-go-to-hell" Syriza party.
Tradition requires that the primary vote earners discuss forming a government first. Tsipras may relent on using his newfound political strength in the interests of national unity, but I wouldn't count on it. The former communist student organizer has another agenda in mind.
Samaras and his conservatives will probably end up forming a government with the socialists. That is, itself, a clear statement on how disjointed European politics has become.
The other sick patient is Spain. Actually, what is happening there has been on the radar for some time.
With Spanish government 10-year yields above 7% in recent days, the bailout provided only a week ago now seems utterly insufficient.
It is becoming evident that the EU financial markets and a weakening banking sector will not be able to stem this rising tide.
Something more needs to be done.
The Myth of American Isolation from the Eurozone
Make no mistake.
All of the rhetoric floating around about how insulated the U.S. markets are becoming to the European debt crisis means very little. Yes, America is better situated and possesses a remarkable engine for generating return. However, if Europe starts to slide, the U.S. will be moving in tandem with it.
Global markets need a European fix, but any genuine solution is likely to take some time.
Still, there are some matters beyond dispute.
For one, despite the problems, European prospects (and thereby wide areas of investment elsewhere) are much worse off without the euro. Greeks may widely disagree as to what policy comes next, but polls consistently indicate that 80% of them want to remain in the Eurozone.
For another, looking at the widening interest rates and declining stock markets one country at a time fundamentally misses the point. The EU has reduced the meaning of national borders, especially when it comes to finance.
That means this is not a Greek crisis. Nor is it a Spanish, Italian, Irish, or Portuguese crisis.
This is a European-wide crisis.
And when a continental-wide currency exists, the fever will show up there. Unfortunately, the centralized apparatus to attend it is insufficient.
The focus now, therefore, is on the relationship between two very different institutions. The first is the European Central Bank, and the second is the European Council.
The ECB will need to inject additional liquidity into the Eurozone – and rather quickly at that. We may debate the overall propriety of stimulus projects, but without another dose now, Europe (and American) investment prospects are in for tough sledding.
The bank knows that, but it will resist for one simple reason that brings us back to my earlier point. Without resolve and a concerted plan of action, stimulus programs merely move money from one place to another, ultimately contributing little more than a rise in inflation.
ECB head Mario Draghi has already warned the EU that it should not expect his bank simply to cut checks (sorry, this is Europe; that should be "cheques"). He has moved the ball into another court.
He has framed it (quite rightly) as a European Council matter. That body comprises the heads of state from EU members, and they are set to meet again at the end of this month.
The EU has reached a crossroads. It survives (along with its common currency) only by further integration. Retaining the quaint nationalistic customs of European postage stamps is endearing, but whether they are standing in a crowd before the Parliament in Athens or in a Madrid unemployment line, the average citizen is exhausted.
And getting angry.
There is a reason that Tsipras catapulted to political prominence in Greece or François Hollande's Socialist Party followed up his presidential victory in France with a solid parliamentary majority in the other European election over the weekend.
The heads of state must act, and decisively. If they continue to debate how to most effectively throw one or another under the bus, we are in for a long and agonizing journey to a fractured Europe.
That development will hardly play well in Berlin, Paris, or Rome.
Or Peoria, for that matter.
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About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.