Spain back on the agenda

So, having had a few weeks off from EU worry, the market now seems to be back in fear mode with Spain being at the top of the agenda.  The pattern seems to be to go from one country to another, things seem to be quite with Greece for the moment so look at who is next on the list.  This type of fear is probably better than worrying about all of the potential black spots of debt crisis as a whole, but there is the impression that nothing ever gets resolved and how can it be?  The problem of debt that has built up over the last 20-30 years is so big that there is no overnight solution to it and markets tend to like solutions that resolve crises quickly.

Markets rally on Greece vote

At least for now the markets seem to be happy with the result of the Greek election.  It looks like the pro bailout parties will form a coalition and seek to "re-negotiate" the terms if not the conditions of the debt repayment.  There was talk over the weekend of Greece perhaps being given more time to bring in the austerity and bailout policies, but whether there is any new agreement on this or not, Greece will probably fail to hit its targets in future anyway so the EU may have little choice but to play the long game.

So, disaster and crisis for the markets has at least been avoided for now and those seeking doom and gloom will probably have to look elsewhere.  It will probably be Spain.

Will Greece leave the Euro or the EU?

There has been a lot of talk around the web that it is only a matter of time before Greece exits the Euro and maybe even the EU, especially if this weekend produces another election result with no one with overall control or able to put together a coalition.  The trouble is that despite the popularity within Greece of a further relaxing of the bailout conditions, or not to pay at all and default, other than the Communists, none of the political parties with any chance of power are arguing to leave the Euro let alone the EU.  Thus far the political will is not there within Greece even within the anti-bailout parties to argue for an exit.  There is also no process within the EU to evict a member state.

Greece could have a referendum on whether to stay in the Euro and/or EU, but all polls suggest that the Greek population are reasonably pro-Europe and want the Euro.  So, on the one hand the Greeks pretty much don't like the bailout conditions that have been set, but on the other they want to stay within the EU and keep the Euro.  Whether a compromise will be reached, a further relaxing of the bailout conditions, remains to be seen, but it seems to be a case of both the Greeks and the EU wanting to have their cake and eat it.

Whatever happens on Sunday, it isn't as clear as some are suggesting that it is inevitable that Greece will leave the Euro leading to others following suit.  I fancy that some sort of patched up compromise will eventually be reached, because no one wants the crisis that is likely to follow the alternative of a Greece exit.

What does a Greek earn?

The UK FTSE seems to be heading into the weekend with a reluctance to give back the gains of recent weeks.  Aided by fresh announcements from Government and Central Banks that further "money printing", which may be as much as £140 billion is on the cards to reflate the UK economy, it was only a matter of time given the quantitative easing ( a fancy technical name for money printing) so far has failed to do the job.  They have taken an overnight lead from the US, where expectations of further relaxing of the printing presses, the Bernanke asset bubble, seem to be more in the spotlight than fears of what may come after this weekend.

Fears?

Markets seem fairly relaxed considering that the Greeks go to the polls on Sunday and it looks like the result will be about as inconclusive as the last time.  The markets will no doubt be hoping for a coalition to come out of the election in support of the bailout conditions previously set by the EU.  The alternative is a step into the unknown, or at least an unknown that could either result in another market crash, or at least a fall that gives back all the gains of the last few weeks.  It is reported that traders have been keeping their powder dry awaiting the election result from Greece.  Pretty good advice right now.

Then there's the little matter of Spain touching the uncomfortable 7% interest on Government borrowing.  The Germans are still very much against the proposed Eurobonds, which is basically just another QE type reflationary exercise that the markets would probably be happy to support.  Given this backdrop the market seems to be in one of those play it by ear moods, the more positive approach of the last few weeks could be a distant memory by this time next week.  Maybe the Greeks will surprise us?  Actually, I suspect no surprise, no overall majority, more uncertainty, for both Greece and the markets.