A critical national referendum, as has now been declared for Greece, at last seems set to test whether the euro is an irrevocable programme. International markets are liable to view that as a tumultuous event.
At time of writing, there’s no debt relief for Greece, although its accumulated burden is commonly agreed by observers to be unsustainable. And no government in Athens willing to apply reforms in the manner that the European financiers wish to ensure.
Because both sides ostensibly need each other, though, no separation from the euro yet either, whose symbolism and operational implications dominate proceedings. Chaos looms over the country’s banking system.
International investors last week assumed that the mutual political imperative would prevail and produce another deal of some sort, or stayed away from market action, in case precisely of the kind of shock that’s now in the air.
Meanwhile, no other obvious influences presented themselves, with relative quiet persisting in relation to China’s uncertainties, Japan’s continuing reflationary policy experiment, emerging markets waiting for the Fed, oil prices pincered by shale operating just at its margin, and the geopolitical and security flashpoints that had slipped in investors’ mindsets but most evidently have not gone away.
Financial commentators in the US — still generally the benchmark for global trends and prompter of overseas movements — had meanwhile viewed equity indexes biding their time, concerned about the Fed’s promised rate hike (hardly any nearer) but lacking any other worthwhile port of call.
With bonds primed for much greater downside than upside, at least on historic precepts and the basic arithmetic of current price levels, participants can worry that comparative corporate valuations make stocks vulnerable too, while hoping the uneven recovery will intensify.
Gulf markets were naturally becalmed too, considering both the Ramadan period and the onset of the worldwide summer trading lull. Regional bonds have tracked US Treasuries, firming upon the safe-haven effect associated with the fear factor attached to Europe.
Indeed, if anything, investors in the region might have expected most local fluctuation to be driven by currency movements, given the shakiness of the euro and its direct link to the US dollar and related units.
Yet the news of a pending Greek plebiscite cannot fail to have further effect across markets. It’s a positive dollar play for the medium term either way.
All kinds of pressure rebound on Greece now, and moreover for the EU. Indeed, global confidence has to take a hit.
The European authorities cannot afford a renegade state determining its own policies, particular at other countries’ expense, with huge collective costs already sunk, and banking and financial exposure accrued. The project has come much too far for that, and plans for the next stage of “integration” and towards fiscal and political union are subject to a forthcoming official report. Yet, nor can it be easily accepted that the self-same country will go its own way, with aggregate losses crystallised. A change of administration in Athens might well be their hope.
And this is what the rest of the world needs to understand. Outsiders can supposedly not believe that Europe might fracture, without wondering why the issue is there at all — whether encasing the continent in an increasingly non-democratic, indefinitely cross-subsidising, growth-stifling madhouse is any safeguard of freedom and prosperity.
The leadership in Greece may be considered as lacking experience, but was chosen as representatives by the people, while the elite running the EU is pursuing a dangerous, utopian dream that is out of touch with ordinary sentiments and assorted aspirations of liberty, let alone the requirements of wealth creation.
Europe is fast becoming a template, not of productive cooperation, but of the perils of supranationalist empire-building and its attendant authoritarian compulsions. Recognising history and recurrent politically wilful motivations, some predicted it.
How boisterous the Greek parliament and population may become in the face of European imposition or conditionality is as yet unknown, so that the pivotal question — quite rightly to be put to the vote — is really whether they want membership of the euro more or less than to avoid further austerity.
What we do know is that any quip that Greece is “not short of money” relates now specifically to Greece the nation, whose citizens have already removed deposits from its banks in droves, rather than Greece the state, which is being kept afloat only by injection from the creditors themselves. An emergency condition has been reached.
It is becoming understood on all sides that there is no comfortably sustainable option available, and a process is now under way that should shake international trading out of its slumber.
At very best, Europe will stumble on, but it is difficult to imagine a pretty outcome to the challenges arising, and much easier to anticipate a combination of political turmoil and economic incoherence weighing upon the continent’s prospects.