For those looking for some good news, all eyes turned to Italy which is sort of like a guy in front of a firing squad being told that maybe everybody will miss. Then again, the drowning man…
Beppe lost; in fact he got hammered but Renzi, who garnered over 40% of the vote will no doubt reject the austerity policies which he believes have brought Europe to its knees and go all out for a growth package that damns the fiscal torpedoes and rings up "all ahead full" (or "ahead Bendix" for you old salts). Problem is, just how is he going to get that done without completely abandoning every guideline of the Union which will raise a true crap storm in the Calvinistic Northern Tier. But Renzi has proven to be a tougher nut than anyone imagined and there will be substantial backing of any play he may make which will no doubt include France as self-immolation in this partnership with Germany is becoming less and less attractive to Les Citizens.
Spain will be there as the two dominant parties took a drubbing as their combined vote fell under 50% with all shapes and sizes of the opposition gaining none more so than something called the Podemos Radicals who I have been told are bad news coming from no where to around 10%. It's one thing to know who's firing the shots but in Spain, the firing is coming from all directions but with the target clearly being Germany for all and the International Organizations such as the IMF for some.
Not so with Greece. The Left was the clear winner and the policy suggestions all that such a result entails, namely the rejection of most if not all debt obligations and the retreat from the Euro. Once again, though small, Greece looms massive in the direction Europe is headed.
Nevertheless, even if all the disagreements among nations could be resolved, there are two massive obstacles facing the Union that may well prove to be insurmountable. In any scenario on any level the Currency, so treasured by most parties and which first buggered the South with massive inflows will almost certainly prohibit reflation where needed. The currency is a mill stone around the neck of recovery and if--and this is a big if--fiscal and industrial policies are not radically changed will remain as such. Unfortunately, the second massive obstacle is working in concert with my view that governance will not change, and that leaves a a large uptick in the world economy as being absolutely essential to European recovery under the present climate. That is not going to happen either, but hope remains eternal and will so remain right up to the final tolling of the bell.
Astride it all, Draghi speaks this week as to the policy of the ECB. "Whatever it takes," worked last time but there is now…finally…an understanding that Draghi successfully --and brilliantly--talked his way out of a financial crisis because talk was the only thing he had. He still has no more. Reflation, using tools available to the Fed and the Bank of England cannot happen; Sr, Draghi does not have the tools. Nor does anyone else on the continent and the absence of capital markets which give such flexibility to U.S. policy makers looms large. What comes out this week is any one's guess but I would be more than a bit cautious.
I've cried "wolf" before only to be proven wrong but this time I may be right. A financial crisis is one thing; a political crises is another and whether is is a good thing or not about the only thing upon which all parties agree--some grudgingly--is that the Euro is a disaster at this time and for different selfish reasons may have to be abandoned. What that would leave us with is at best a trade union operating much in the same manner as trade has been conducted among sovereign states for 5000 years. Maybe that's not such a bad idea if it is the one policy point on which all can agree rather than one of the members saying one day, "bugger it" and heading off on their own. I don't think the decision point is too far away and as I said that may not be all that bad. After all, such a system got us this far...
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