As the Europeans look into the mirror today they should ponder their own reflection. Since the beginning of the financial crisis that has gripped financial houses and governments across the continent, austerity has been a word that has been brandished. However there have always been others who have believed that austerity measures were not needed and that instead a complex program which dealt with problems on a case by case scenario would be much better.
Irksome budgets, corruption, flawed economic growth strategies, special interests groups, costly social agendas, and flawed politicians are just some of the problems that lurk within. But for the last few years the focus has certainly on the surface been austerity, and suddenly because of the election results in Italy there are those who are saying that it is clear citizens will not accept this punishment anymore. And European ministers have started to react saying that budgets should be allowed to withstand more spending.
It doesn’t seem to matter if logic is not being used. It doesn’t seem to matter that simple math and ethics are not prioritized. What seems to matter is that Europe will simply go on being Europe. Historically it has been a continent of self-interest occasionally displaying a desire for unison thinking until ideals meet cold hard facts.
While this is certainly not the end of the great European Union experiment, cracks are beginning to show on the walls and yesterday’s acknowledgement from some that deadlines and excessive budgets would have to be met by more flexible means is a telltale sign that Europe lacks the backbone – cohesiveness – to deal with their problems.
Some will argue that it is a better reality, that the ability to bend rules for individual cases is important, and Digital Markets Advisor agrees with that. However, it also highlights significantly different outlooks and tactical thinking on how governments need to respond and work. France and Germany are a great example of two nations that are absolutely at the center of E.U. thinking that frequently do not think alike.
And let us not forget that while some are saying that the results of the Italian election – stalemate – are signs that the population will no longer accept austerity measures that this may in fact be a wrong conclusion. Italian politics have historically always been at odds. A massive amount of regional interest exist with different philosophies and values. Coalitions have been needed in Italian politics many times before. The fact that the outcome from this election left no clear winner is nothing new, it is the timing of the result that has spooked investors. The Sovereign Bond market consisting of a multitude of investors is not about to take home a book and read about the history of Italy and its City-State national saga for encouragement. No, everyone wants an answer for today.
Investors who have insights regarding the history and divergent nature of self-interest may have the advantage in the marketplace. Whether the outlooks are short-term or long-term is not a problem. Both traders and investors can gain if they make sure their perspective includes pragmatic thought.
Caution is certainly a by-word in today’s market environment. While Europe is going through its paces, across the Atlantic the U.S. is showing that it does not have much desire to conclude it own problems either. What investors do not like typically is uncertainty and for the time being politicians are showing that they have little in the way of answers and uncertainty abounds. Both spheres – Europe and the States – lack good leadership. Self-interest rules.