Research & Insights

Posts published in November 2011

Weekly Market Comment: Occupy Eurozone

November 4, 2011

By Katrina Lamb, CFA

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As of this writing it is too early to tell how the most recent curve ball thrown in the ongoing Eurozone debacle will turn out. The referendum proposed earlier this week by Greek premier George Papandreou caught the world by surprise. Actually, to employ the terminology now in vogue and quite relevant to the idea behind this referendum, the 1% were caught unawares and displayed much consternation, while the 99% looked on and said “hmmm, okay then”. The referendum itself looks like it won’t see the light of day, and despite surviving a vote of confidence today neither may Papandreou himself in the not too distant future. At this point we do not know. But here is a prediction: this is likely not to be the last time in this saga that the messiness of democracy clashes with the efficiency of a financial bailout. Occupy Eurozone has arrived. Whether one supports the “Occupy” mindset or not, there is another voice at the table in the Eurozone as on Wall Street, in Oakland and many points elsewhere. It will have to be reckoned with regardless of the imminent fate of the Greek government.

At the end of last week Eurozone leaders finally reached the end of a physically and emotionally taxing round of negotiations on the terms of a deal that would, at least for the time being, mitigate the prospect of a chaotic Greek default that could take other sovereigns down with it. Markets responded to the deal with unconcealed jubilation while expert commentators tended to accord it the “two cheers” treatment – good for what it accomplishes for now, but far from being any kind of deep solution to the long-term problems that the Eurozone faces. The elite consensus was that this was good enough, now let’s move on. Negotiators no doubt looked forward to the prospect of seeing their families again after weeks upon weeks of brutal round-the-clock haranguing and consensus-building.

Then came Papandreou’s bombshell, just in time to roil asset markets on Tuesday. From the birthplace of democracy came a fairly straightforward notion: since the terms of the deal will involve deep, painful austerity measures that will have far-reaching effects on Greece’s citenzry, should not the citizenry have the opportunity to make their voice heard? After all they are going to have to live with the outcome – one way or another – for quite some time to come. No, no! cried the exhausted policy leaders. They pointed to irrationality revealed in the polls – a majority of Greeks appear to want all the benefits that the stability of the Eurozone confers without any of the spending cuts, tax increases and other measures that will be required to get their economy back on track. They’ll just cut of their nose to spite their face, went the conventional wisdom, and the outcome will be lose-lose all around.

The polls do reveal a lack of logical thinking, to be true. Popular-voice polls often do. But that is not really the point. What Papandreou – wittingly or not – stumbled onto was the idea that the voice of real people who are not policymakers or financial executives at large European banks should be a part of whatever decisions are made about the economic future of the countries in which they live. In short that is what the whole Occupy phenomenon is about – a voice, not a specific set of demands or policy prescriptions (few of which are in evidence). Vox clamantis in deserto – a voice crying in the wilderness. Referendum or not, that voice is not going to disappear wispily into the ether.

There are no easy answers to any of the problems the world is facing now – anemic growth, crushing debt, dysfunctional politics and discredited institutions. If you will, neither the 1% nor the 99% can supply the answers. What seems clear, though, is that the days where the single answer to each successive financial crisis is to throw enough money at the institutions caught up in the mess to bail them out of their woes (and create successive asset bubbles in the process) are numbered. This will very likely make for an even bumpier ride in the near to intermediate term (if such a thing is even possible given the daily market gyrations that have already become the norm). In the long term, however, it may turn out to be the less disruptive road to take. Major pillars of the social contract that Europeans have come to expect from their governments will in just about all likelihood have to change dramatically. This will probably be more stable if the 99% feel some ownership in the process and its ultimate results.

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