Via Mark J. Grant, Author of Out of the Box,
“Arbitrary power is most easily established on the ruins of liberty abused to licentiousness.”
-George Washington, 1753
Sunday marks the day in Greece, France, parts of Italy and Spain. May 6 will stand out perhaps as the day when the fortunes of Europe were reversed and if not reversed; re-programmed. There has been a lot of talk about this of course and a lot of speculation in the Press and, one would think, that it had all been discounted by the markets but not so fast. The discount will only go as far as the political implications are generally understood and I would submit that the particularities of the European elections are not well understood at all. I think the markets’ reaction is a first blush notion which does not get close to the more pressing questions of what some of the potential changes in power will mean past the revelry of the election night parties.
In France the markets have perhaps priced in the fact the Mr. Hollande is a Socialist and that term, perhaps well understood in France, rambles about in American minds somewhere between Eugene Debs and the American Labor Movement and Lenin’s view that Communism would overtake Capitalism in the end. The concentration has been placed upon the Socialist nametag and, in my mind, that is not the most important of attributes. Mr. Hollande represents a defiance of Germany, a desire to renegotiate the Fiscal Pact, a return to exerting power on the basis of the greatness of France and a significant lessening of some grand European vision concerning “Liberty, Equality and Fraternity.” Mr. Hollande, in fact, represents the wave that is sweeping all across Europe which is a return to Nationalism, to tribal pride, to economic self-protection as the European Recession, as driven by the “austerity measures” and fiscal restrictions imposed by Berlin deepen both the economic travails and the reaction to finding your nation under the economic jack boots of Berlin. I suspect that when we look back, some years from now, that we will find that the imposition of German ideals and practices upon peoples with different social and cultural histories will be one of the main reasons why the grand adventure failed. The traditions of two thousand years do not wilt because it is demanded by Germany and no country, no people, wants to have an imposition of power, whether wielded on the streets with tanks and guns or wielded in boardrooms with bushels of Euros scattered about, mandated of them. It may be, in France, that May 6 is only day one of a transformation of power as June marks the Parliamentary elections and the voice of the Right, as led by Marine Le Pen, may well control a significant amount of the elected officials. In any event it appears that we will have a very different France, a Germany and France not locked-stepped but locked out-of-step and two distinct visions that may mark a European governance that is someplace between difficult and impossible.
What is also becoming clearer, with the passage of days, is that Germany is finding itself in an ever more isolated position and that regardless of her economic prowess that she is shunned because of her aristocratic attitude in trying to tell everyone else how to behave and how they must live. I was recently in Europe and there is real anger and the venom spewed by the citizens in other countries was not lost upon me. It is no longer the “Ugly Americans” but the “Ugly Germans” that bear the brunt of the Nationalistic push-back. In my opinion the days of Germany ruling Europe by fiat will be a short-lived affair and the end is now nigh and in sight.
In Greece it may only be Hades and Poseidon and a few of the old gods that know how things may go this Sunday. What seems certain, however, is that a significant amount of Parliamentary seats will be won by splinter groups so that it is impossible to effect real structural changes and that governance may be so difficult that chaos prevails. I have long asserted that Greece will remain in the Eurozone as long as the monetary spigot is left open but that the moment that it is closed; “goodbye, thanks for all the fish and have a nice life” as Europe reels from the default both economically and socially. In both Spain and Greece the math just does not work. You can live in the charade or you can pull the covers up over your head and pretend but, in the end, the arithmetic will prove that neither country can continue to pay their debts as their economies and banks cannot support them. The IMF, as pressured by the countries outside of Europe, may well be the first to fold as they inform Europe that no more money is forthcoming as the odds of getting paid back equate to winning at Three Card Monty.
Now all of my musings this morning is not just political commentary. All of the changes of guard in Europe are going to have a profound effect upon the marketplace in my view. There will be a widening of credit/risk spreads, a decline in the equity markets, a decline of the Euro against the Dollar as Fear climbs back in the driver’s seat and as uncertainty is the prevalent theme of each day. There will also be a sustained widening between bonds denominated in Euros and bonds denominated in Dollars as U.S. Treasuries continue on with their safe haven status and may possibly sink to yields that no one ever thought was possible as a consequence of all of the political changes on the Continent.
The mightiest of weapons is the truth and everyone in Europe knows that you are not allowed to enter Parliament with a weapon.