Let’s be frank, the euro’s days are numbered…(War in…3…2…1)
Commentary: It could take a very long time for the dominoes to fall
By Michael Casey
June 20, 2012
Don’t be fooled by a rallying stock market, where blind hope that a dollar-deluging Federal Reserve will come to its rescue has trumped fundamental analysis these past two days. The world must come to terms with a brutal fact: the euro’s endgame has begun.
That was made clear by Monday’s gloomy market response in euro-zone bond markets to what in theory was the best possible outcome from Greece’s weekend election. With the narrow victory for the center-right New Democracy party and the prospect of a minority government that can push through an agenda that is more or less favorable to Greece’s EU creditors, the beleaguered country got to fight another day. And yet there was nothing but disappointment in the euro zone following the news, as Spain’s bond yields soared to new euro-era highs.
It was as if investors had gone into the weekend hedged for the slim possibility of a miracle. Perhaps they were holding out for an all-out majority victory for New Democracy and for some confidence-building statements of intent from both the new government and the EU that a revised rescue deal could be drafted to remove the threat of a Greek exit from the euro zone. Once that miracle didn’t happen, they unwound their hedges and reflected on what is by now the consensus view: that, no matter who is in charge, Greece will have to dump the euro EURUSD +0.04% at some point.
In effect, a Greek exit has become a foregone conclusion for many, and that makes its problems yesterday’s story. Now it is all about Spain, an economy that is almost twice the combined size of Greece, Ireland and Portugal, the three euro-zone countries that have already received bailouts.