With Greek elections behind us and a pro-austerity government apparently in the works there, markets have naturally shifted their attention to something else: Spain. There, bond yields have surged to new euro-era highs, suggesting that there is little hope that the country can go on without a massive bailout.
Yes, this is scary. Here’s how Paul Krugman puts it in his New York Times blog: “At any given time, there tends to be one number I check on waking up to see how close we are to the apocalypse. Often it has been the U.S. 10-year – where down is bad, because it shows pessimism about the economy. Right now it’s the Spanish 10-year, where up is bad, because it shows pessimism about the future of the euro.”
The yield on the bond was recently spotted at 7.1 per cent, but had shot as high as 7.25 per cent earlier on Monday. Either way, it’s well above the previous peak of 6.7 per cent in November, when it looked as though the euro zone was imploding. So, were the Greek elections – which appeared to be hanging over market sentiment throughout most of last week – actually quite meaningless?
Mr. Krugman argues that the Greek elections merely brought in a coalition that will pursue a strategy that is almost guaranteed to fail. “In a way, the worst thing about the Greek election is the possibility that it will encourage the Germans and the ECB to persist a bit longer with their fantasies about how things might work,” he said.
Here are a few other comments about the elections and where Europe goes from here. A theme seems to be emerging: No joy here.
Sherry Cooper, BMO Nesbitt Burns: “Any solace the markets take from the Greek election results is likely to be short lived. Until Germany is willing to foot the bill for much of the Eurozone restructuring and acknowledge that monetary union implies further integration towards a fiscal, political and banking union, the crisis will continue.”
Emanuella Enenajor, CIBC World Markets: “While Greece has averted a messy near-term Eurozone exit, challenging days for the euro still lie ahead. The waning rally in risk assets today reflects doubts about Athens’ ability to achieve its austerity goals, concerns about other troubled members like Spain and fears that the Eurozone will be unable to grow its way out of its fiscal and economic perils.”
Martin Schwerdtfeger, Toronto-Dominion Bank: “It will be hard for the coalition to carry through with the structural reforms and the adjustments that are required under the program. In all, we believe Greece will have to restructure its debt once again and that the country will eventually leave the euro zone.”