Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20
Global "Debt Mountain": Beware of This "New Peak" - 13th Nov 20
Overclocking Zen 3 Ryzen 5600x, 5800x, 5900x and 5950x to 4.7ghz All Cores Cinebench R20 Scores - 13th Nov 20
Is Silver Leading Bitcoin or is Bitcoin Leading Silver? - 13th Nov 20
How Elliott Waves Simplify Your Technical Analysis - 13th Nov 20
How to buy Bitcoins using debit/credit card? - 13th Nov 20
Will COVID Vaccine Kill Gold and Silver? - 12th Nov 20
Access to Critical Market Reports - 12th Nov 20
Stock Market Dow Futures Reach 30,000 on News of COVID-19 Vaccine Trials Success - 12th Nov 20
8 Terms & Conditions You Must Know Before Asking For Life Insurance Policy Quotes - 12th Nov 20
Gold Stocks Post 2020 US Election Outlook - 11th Nov 20
Champions’ League Group Stage Draw: All You Need To Know - 11th Nov 20
Stock Market Secular Trend - 11th Nov 20
Stock Market Correction Curtailed by US Election - 11th Nov 20
What Causes a Financial Bubble? - 11th Nov 20
Ryzen 9 5900X RTX 3080 - Scan.co.uk vs Overclockers.co.uk UK Custom PC System Builder Review - 10th Nov 20
Killing Driveway Weeds FAST with a Pressure Washer - Saving Block Paving from LOTS of WEEDs - 10th Nov 20
Trump Fired, Biden Hired, What Next?  - 10th Nov 20
Looking for a Personal Loan? Here Is What You Have To Know  - 10th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Euroskeptic Election Victories Raise Global Risk Of Return To 2012 Crisis

Politics / European Elections Jun 06, 2014 - 01:43 AM GMT

By: Dan_Amerman

Politics

In one of the most stunning political developments in recent decades, the group of political parties that are being collectively called "Euroskeptics" won more votes than any other individual party in several major European nations in the May elections for the EU Parliament.


In the UK, Nigel Farage's UK Independence Party, which advocates immediate withdrawal from the European Union, led all other political parties by winning 29% of the vote.  In France, Marine Le Pen's anti-euro and anti-immigration National Front party, with their slogan of "France for the French", also received the highest percentage with 25% of the votes.  In Denmark, the anti-EU and anti-immigration People's Party received the most votes as well, with 27% of the total.

According to Reuter's:

"Across the continent, anti-establishment parties of the far right and hard left more than doubled their representation, harnessing a mood of anger with Brussels over austerity, mass unemployment and immigration."

The direct and immediate implications of these results may not be that great, given that the combined votes of the establishment center-left and center-right parties will still be sufficient to control the EU parliament on any matters where they agree to act as a coalition.  However, as explored herein, there has been a shifting of the odds when it comes to the likelihood of different possible financial futures occurring, with global financial implications over the long term that could be just as powerful as the potential political earthquake in Europe.

The economies of individual European nations such as Spain and Italy are every bit as "sick" as they were in the spring of 2012, when Europe was in a deep financial crisis. What has changed is the increased powers of the European Central Bank to intervene, which has allowed for an artificial stability to be forced into the markets that is not based on fundamental economics or returns – but rather on the strength of the central banking actions.

However, the rise of the Eurosceptics imperils the tools by which this artificial and dysfunctional stability is maintained, which means that the chances of Europe's returning to where it was in 2012 – or worse – are up sharply.  If this were to happen, it would in turn sharply increase economic and financial risks in the United States, as well as Canada and Australia.

A Potential Developing Political Crisis

In the eyes of national governments and Eurozone bureaucrats, the "script" for the future of the EU was supposed to be following a quite different path. The plan has been an ever tighter integration of Europe politically, economically and financially as over time more and more of the individual member states' sovereignty was yielded to an ever more powerful centralized European government.

That election results indicated voter rebellion against these objectives on a stunning scale must be quite a shock to those who had been assuming that there was an inevitability to this path.

Though of course, as was immediately pointed out by media outlets as well as political commentators, an extraordinary rise in the polls and winning the largest votes of any single party is not at all the same thing as taking power.  Indeed, while these Eurosceptic parties won more votes than any other single party, they're still a long ways away from the majority. And as long as the more mainstream parties are willing to work together in the EU Parliament, the Eurosceptics may have very little effective power at all. At least in this round.

That notwithstanding, let me suggest that the bigger and far more fundamental issue is that the voters have not only spoken, but shouted. And when it comes to something arguably much more important, which is not the elections for the EU parliament, but rather the future domestic elections which will determine the national governments of the countries in which the Eurosceptics did so well – we may be just starting to see what the implications will be.

That is, what truly matters may be not who the United Kingdom voted for as their EU parliament representatives, but rather who the UK votes for in the election of the next UK parliament, and the French in their next national election, and so forth.

Even with not having won majorities in any nation, there are two fundamental ways in which these parties can change the course of Europe to a quite different direction than where the EU leadership has been envisioning.

One possibility is that at a future point, one or more of the European powers will have the Euroskeptics in a coalition party on the national level.

Which could give them a very great say indeed, not necessarily on an immediate outright withdrawal from the EU or the euro, but on a reduction in power and a reduction in integration rather than moving towards further integration.

The other impact can be seen immediately in France, where President Francoise Hollande, who was all in favor of raising as many taxes as possible two years ago, is now quickly backing away from that position in view of what voters are indicating.

So as the more established parties within the European governments jockey for electoral control, there will be a powerful temptation to shift platforms, at least to some degree, towards the demands of the Euroskeptics, in trying to capture as many of those angry voters as they can for their own party, and their own ability to rule in their particular nations.

This makes it very difficult – given the need for unanimity and the number of nations that are involved in this revolt – for the European Union or the European Central Bank to further expand their powers. Indeed, there is a quite respectable chance that as part of the price of a coalition government, or a changing of party platforms to try to attract these voters, that the powers of the EU and the powers of ECB may start to lose strength.

Remembering Europe In 2012

It is all too easy to forget just how bleak things were looking for Europe – and the rest of the world economy and financial system – in May of 2012. Spain, Italy and Greece were all in enormous trouble. There was considered to be a sharp risk that one or more of those nations faced an economic and financial system meltdown because they simply owed more money than they could afford to repay, even while their economies were very weak.

Now bailing out Greece is one thing.  But as was being frequently discussed two years ago, bailing out Italy or Spain (at least in the usual sense) could be near impossible for the rest of Europe to do. Thus a crisis was rapidly building which seemed to have no viable answers that many could see.

Many gloom & doom commentators were at full volume about the purportedly inevitable collapse that was rapidly approaching, even while an increasing number of mainstream commentators were sharing their growing unease about the possibility of something very bad indeed happening to the global financial system in the coming weeks and months.

At the very same time, I was showing attendees in my Overcoming Monetary & Political Risk workshops how the whole crisis could be made to "go away in a day".

I explained in advance what the solution would likely be, which was a radical increase in the powers of the European Central Bank and its ability to intervene in national bond markets – with a potentially limitless creation of money to finance it – much like the way that the Federal Reserve has been holding the United States' dysfunctional financial system together for several years.

And to make a long story short, that is exactly what happened.

The effective monetary and financial powers of the ECB and EU rose sharply, enabling them to override national debt and banking crisis more or less at will. And this atmosphere of crisis evaporated in a matter of months, to the extent that it may be difficult to remember just how bad it was a couple of years ago.

But while financial catastrophe has been averted these last two years, the dysfunctional fundamentals haven't changed.

The European economy remains in poor condition.

This is particularly true when it comes to the still weak economies of Spain and Italy, which remain heavily, even overwhelmingly, in debt.

Both nations have extreme youth unemployment crises as well, which exist as but one part of the unemployment problem in Europe as a whole.

It is no coincidence that two of the nations in which the Euroskeptic parties performed the worst were Spain and Italy.  After all, they know they need the help of the European Union.

What many investors as well as commentators did not understand in 2012 is the extraordinary power of governments and central banks to "change the rules" of how markets and money work, to make a seemingly unsolvable crisis evaporate in a period of months.

If one doesn't fully understand the "cure" (even if deeply flawed and limited), then one may not understand the acute dangers that arise if the basis for this "cure" collapses or is unwound.

What the Euroskeptics fundamentally threaten is the power of the EU and ECB to bring artificial stability to the markets.  Without which, a raging market crisis threatening potential meltdown such as we saw in 2012 could quickly return – but without the ability to override market forces this time.

Artificial Stability & The Underlying Reality

When considering Europe – as well as the United States – we need to keep in mind that there is an often sharp distinction between the seemingly placid surface, and the underlying economic and financial reality.

The 2nd half of this article goes deeper into the dysfunctions that are currently being covered over by central banking and other interventions.  It shows how the rising influence of the Euroskeptics is the precise kind of risk that could swiftly take down this artificial stability, and how that could spread around the globe.  The article concludes with discussion of how the odds have shifted when it comes to three alternative financial futures of 1) healthy markets versus 2) long-term low rate and low growth markets versus 3) possible severe monetary and economic crises.

Continue Reading The Article

Daniel R. Amerman, CFA

Website: http://danielamerman.com/

E-mail:  mail@the-great-retirement-experiment.com

Daniel R. Amerman, Chartered Financial Analyst with MBA and BSBA degrees in finance, is a former investment banker who developed sophisticated new financial products for institutional investors (in the 1980s), and was the author of McGraw-Hill's lead reference book on mortgage derivatives in the mid-1990s. An outspoken critic of the conventional wisdom about long-term investing and retirement planning, Mr. Amerman has spent more than a decade creating a radically different set of individual investor solutions designed to prosper in an environment of economic turmoil, broken government promises, repressive government taxation and collapsing conventional retirement portfolios

© 2014 Copyright Dan Amerman - All Rights Reserved

Disclaimer: This article contains the ideas and opinions of the author.  It is a conceptual exploration of financial and general economic principles.  As with any financial discussion of the future, there cannot be any absolute certainty.  What this article does not contain is specific investment, legal, tax or any other form of professional advice.  If specific advice is needed, it should be sought from an appropriate professional.  Any liability, responsibility or warranty for the results of the application of principles contained in the article, website, readings, videos, DVDs, books and related materials, either directly or indirectly, are expressly disclaimed by the author.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules