I have been away in the CIS, the Balkans and to Egypt over the last few weeks – the latter to lay down on the sun-fuelled beaches where the Sun God, Ra, still pontificates on a daily basis, to its current 21st Century crop of worshipers who fly over on a weekly basis – mostly a pale-faced lot from Europe!
So where are we in late April?
The Euro Crisis continues to mutate although the chances of the imminent collapse of the Eurozone has not materialised as some commentators unfamiliar with the political nature of the EU would have led you to believe.
Continuing with the classical theme, perhaps a more apt description would be to term the Euro Crisis more akin to a Madusa-isation: a wonderful creature that the gods (of Economics in this case) turned into an ugly thing to behold: that would turn any market that looked at too long -currency, credit and bonds - into stone.
The focus continues to shift from Euro Member-State to Member State. 24-7 coverage magnifies formerly domestic political situations into another potential banana-skin, hurdle or potential fissure for the Eurozone. We have shifted from the periphery towards the core. Spain is now in the headlights but the news of the collapse of the Dutch government highlights how domestic political machinations - in this case by the rather aptly named wilder Mr Wilders who pulled out his Right Wing party from the governing coalition to protest against diktat from Brussels providing limits to the Dutch fiscal stance.
Madusa’s head was full of snakes if I recall from my school day review of Classics (and updated by the recent remake of the Clash of the Titans movie!). In this case we have 15 Eurozone heads and in fact 12 more non Euro-zone snakes for the rest of the EU countries facing the chilling impact of a faltering Eurozone on their growth coupled with the increasing realisation of what the Fiscal Compact implies.
Put more simply, we now have a potential conflagration that is affecting political calculus pretty much everywhere in Europe: Eurozone, the rest of the EU (Czech, Slovakia, Poland…) and those wannabee EUers such as Croatia and Serbia.
What does this mean in terms of strategy and outcomes for macro and political risk?
Ignore the white noise about “is there a return to growth or not”. The plain fact is that the Euro crisis is entrenched and will take a good few years to resolve. Policymakers are making efforts but are themselves hampered by domestic politics in each of these countries that means that efforts to resolve the crisis will continue to be gradual, piecemeal and sometimes perverse.
The Dutch instance is a case in point – until literally a few weeks back the Dutch were busy chastising the fiscally weak countries and now the country’s politicians find themselves facing the same challenge: fiscal machismo is possible only if you have a strong domestic plebiscite – as when the Scandinavians did so in the 80s following the banking crisis.
Programmed elections in France and forced elections through fall of government – Ireland, Greece, Italy…Slovakia, Holland…- will lead to spikes in risk as politicians rip up the European scripts and focus on the prime directive for any politician, of ensuring political survival.