Talk Elections

On the face of it, it's absurd to ask. Unemployment in Greece and Spain are at records and rising, and as was pointed out, Golden Dawn is even gaining in polls in Greece. The two countries are still running big current account deficits, and big budget deficits, the twin deficits that are at the root of the crisis. Spain will need to seek a rescue, although Mariano Rajoy does not want it. Between France and Germany, nothing seems settled, and every summit still unsettles markets. Growth does not yet seem to have returned.

Yet on the credit markets, where it all started, there's been a remarkable turnaround. Ireland, Portugal, and Italy, three of the original PIIGS, have seen long-term declines in credit risk and bond yields since various peaks in 2011. Even Spain, the problem child, yields are lower now than they were a year ago. The French-German 10 year spread has fallen from 190 basis points to 76 basis points. The 3-month Euribor rate, a measure of stress in the European banking system, has plunged from 1.3% in January to 0.22% now. The Athens General Stock Exchange has surged 76% from a low on June 5, the longest rally since the outbreak of the crisis. That means that people who are closely watching the situation (because their money is at stake) are hopeful, at least for now.

This is not a prediction... I leave this open as a genuine question. Never before since the start of the crisis have these key financial indicators (which are arguably leading of other measures such as growth and unemployment) been trending so positive for so long.

Depends on what you mean by "crisis".

This round is largely over, tho Greece could still have to exit the euro, but it wouldn't trigger the dominoes that it would have earlier.  A Greek exit would be just that and not the harbinger of more in the immediate future.

The problems are not over, but the news is - they've been manageable all along, something we're only beginning to understand now.  Really the most important issue vis-s-vis the USA is that any troubles will be after the election.

The media jumps around to new topics. My guess is we'll see a new drop once people realize the fundamentals remain as bad.

Agreed, nothing substantial has changed over the past six months to account of this outside of the drop in media coverage. Spain is still on the brink of collapse, Greece's unemployment rate is still increasing and the few breaks that are opening up in the clouds appear to be the calm before the storm. 25% unemployment rates can only be endured for so long. The collapse of Greece's government could occur in the space of a few weeks due to a small push that results in a positive feedback loop. These recent figures could be rendered irrelevant over the space of a few days.

The fundamentals remain bad in Spain and Greece, however Ireland and Italy have definitely improved. On September 28, there was this report in RTE News (http://www.rte.ie/news/money/mortgages/have-house-prices-bottomed-out.html) mentioning that Irish house prices have increased in May, July and August. Prior to May, there had not been a monthly increase in 5 years. This is significant as it contains losses in the Irish banking system, and since Ireland's trade balance is already sufficient, the bottoming of the real estate market stabilizes the country.

Even more significantly, I read today that Italy ran a trade surplus for the first six months of 2012. I don't know if this is a seasonal thing with Italy, but in any case the Italian balance of trade (http://www.tradingeconomics.com/italy/balance-of-trade) seems much better this year than last; and that might help account for why its credit risk has fallen so much. Last year I was apocalyptic, thinking that getting rid of Berlusconi would not solve anything, but now it appears as if that might have done the trick after all (along with some actions by the ECB of course).

Portugal, I do not know much about. As I mentioned above the markets appear to be giving the country confidence.

Guess I was right then :)

Anyway,yesterday (or the day before,don't remember) both Spain and Italy's auctions went perfectly,with record-low rates.

Can the Southern European countries afford the Euro better than they could a year ago?

In the quarter since my original post, a number of news outlets have run stories on the stabilization of the Euro crisis, as the story has broken into the mainstream press.

Currently what we have now is a paradox- critical credit, financial, and trade indicators continue to move in the right direction, as far as I can tell. Even Greece's current account deficit was down 75 pct YoY in 2012. However, the human indicators, unemployment, and production, continue to move in the wrong direction. This is the place that the U.S. was at between early March 2009 and February 2010. The difference is that there are many more political variables in Europe...

The ironic thing with the "Outright Monetary Transactions" program that was supposed to lead to the Weimar hyperinflation, is that not a penny has been spent. Just like Timothy Geithner's Public-Private Investment Partnership, merely the knowledge that the government is not going to let the world come to an end has brought stability. Who would have guessed at such a thing?

Is this some kind of way to say "I was right and I'm so smart"? Because I personal think it would help if we knew what you talked about.

It's a sarcastic way of saying "yeah, it's obvious that if the government supports the bond market, the bond market will hold up." As in:

1+1=2

Who would have guessed?

The implication is, it should have been obvious. The first sentence in my post does contain a bit of self-congratulation, but only for being ahead of the mainstream media by a month or two.

I'm still not saying this is the end of it. Doesn't Berlusconi want to get back to the lira? If he scores an upset in February the entire EZ could still come crashing down. Heck, if that's your ticket you might even perversely hope for him to win even if you hate him in every other context. And Greece's problems are not solved by any stretch of the imagination.

Can you say, "calm before the storm?"