Article by Investment U
These recent elections are just one more reminder to use extreme caution before investing anywhere in Europe.
Greece and France had elections over the weekend, and the results don’t appear to favor business, either individually or for the larger Eurozone.
Over the last few years, the Greek people have rioted enough to make it very clear how much they value their government-supported lifestyles. Every time the International Monetary Fund (IMF) demanded the ailing economy institute austerity measures and President Karolos Papoulias agreed, the Greeks would immediately get up in arms.
So it’s no surprise they decided to shake up their current power structure as soon as they got the chance to. And maybe it shouldn’t even be that shocking how they ended up electing both left- and right-wing extremists, including Neo-Nazis, for various government positions.
Scary, yes. Shocking? Not so much.
Then there’s France, which didn’t care for its own leaders’ attempts to balance the bank. Given the choice between President Nicholas Sarkozy and someone who promised to pander to them more often, they easily chose the latter.
That’s not to say that either Papoulias or Sarkozy were perfect politicians – because they certainly weren’t. But as Christian Science Monitor writer Stefan Karlsson explains, in both cases, “a majority of voters decided to throw out the incompetent incumbents and instead go for the even crazier opposition.”
Karlsson even goes so far to compare the current situation to “the incompetent and corrupt Weimar German establishment,” which lost in 1932 to the National Socialist German Worker’s Party – better known as the Nazi regime.
European Economics in a Nutshell
Only time will tell if Karlsson’s comparison is extreme or not. But what investors have to understand right now is that these European election results likely solve absolutely nothing.
In fact, they’re likely to make them that much worse.
Some economic analysts are currently claiming that neither Greece nor France’s individual actions matter much on a global scale, since the Eurozone’s fate rests solely in the hands of international organizations, like the IMF. But that’s an extremely simplistic conclusion to reach on an extremely complicated matter.
Like it or not, each country in the Eurozone is painfully interlocked with the next, while still existing as its own separate entity. They all have their own governments, economies and citizens, but they share the same currency, which makes things extremely complicated.
It puts weaker countries like Greece into positions of power they’re not strong enough to hold. They can run their economies into the ground – as many of them seem intent on doing – leaving their stronger allies with little choice but to rescue them.
Either that or let their shared euro severely devalue.
The way the Eurozone is organized, there’s no way around it: Whatever decisions Greek politicians make will somehow affect Germany, just like French decisions to focus on spending over saving will come back to bite everyone else.
That’s what sharing a currency usually means.
European History in a Nutshell
The fact that the countries in the Eurozone have long and complicated histories together doesn’t help the economic situation much, either.
Each has gone to war with the other repeatedly over the centuries, which has resulted in a lot of long-lasting hard feelings all around. Consequently (though perhaps not logically), their natural inclination isn’t necessarily to help each other out, even if it makes perfect sense to do so.
Then there’s the issue that most of Europe has been practicing dangerous economic policies for decades, fooling around with various levels of socialist policies that have left their citizens dependent on now badly insolvent governments. And when the people keep electing politicians set on continuing those strategies – like they just did in France and Greece – it makes the problem that much more complicated and long-lasting.
There’s only so much supporting a government can do before it implodes. But that doesn’t seem to deter either Greece or France at all, judging by their voting results.
If the countries in the Eurozone don’t get their act together soon, investors may be better served staying away for a very long time. And even if they do start to make positive changes, it’s still going be a convoluted mess, probably for years.
These recent elections are just one more reminder to use extreme caution before investing anywhere in Europe.
Good Investing,
Jeannette Di Louie
Article by Investment U
