Political change has swept Europe, and while the characters have
changed, Europe's financial problems remain.
Socialist Francois Hollande was elected as France's new president,
German Chancellor Angela Merkel's political party suffered setbacks
in northern Germany, and Vladimir Putin returned to power in
Over in Greece, the two largest political parties failed to keep
their majority status, which puts into question its ability to meet
economic milestones. Greece needs spending cuts of 5.5% of its GDP
in 2013 and 2014 to satisfy its bailout conditions.
The reaction for the euro currency (NYSEArca: VGK), European
stocks (NYSEArca: VGK), and Russian stocks (NYSEArca: RSX) to the
changing political winds has thus far been quiet, but will it stay
France's exiting president, Nicolas Sarkozy, played the part of
cooperating with Germany's strict austerity diet of spending cuts
and deficit reductions. Unfortunately for him, that strategy didn't
sit too well with French voters and so they gave him the boot.
(Sarkozy was so shaken by the loss, he vowed to quit politics
If Nicolas Sarkozy was the equivalent of Dr. Jekyll, than his
successor, Hollande is definitely Mr. Hyde.
As France's new president, Hollande, is calling for economic
plans that are opposite of Sarkozy and in direct conflict with
Germany's plan for economic reform. Interestingly, Merkel did not
Tweet or Facebook congratulations to Hollande, but telephoned that
honor and also invited him to visit Berlin ASAP.
Will the calm relationship between France (NYSEArca: EWQ) and
Germany (NYSEArca: EWG) - two of Europe's key economic
cornerstones - remain?
Hope and more Hope
A change in political power is often followed by great enthusiasm
and hope from the general public, regardless of whether that hope
is realistically justified. As history has shown over and over
again, the election promises made often go unfulfilled.
Speaking of campaign promises, Vladimir Putin really put himself in
the firing line.
Putin wants the Russian government to increase capital
investment to no less than 25% of GDP by 2015 and to create an
additional 25 million jobs by 2020. He also wants a 50% increase in
labor productivity by 2018.
Now that his presidential term runs for the next six years,
Putin will be given plenty of time to make his dreams come true.
Slow Moving Crisis
Since the onset of Europe's financial crisis, the euro currency has
remained resilient and stubbornly inflated. Today's trading level
of around 1.29 versus the U.S. dollar is virtually unchanged over
the past two years. It's not the sort of calm trading conditions
many bearish traders expected, but a debt crisis of this magnitude
doesn't always have an immediate impact.
The ETF Profit Strategy newsletter keenly observed this by
saying, "Europe's sovereign debt crisis has been a slow moving
crisis. Sometimes a region, a country or a market doesn't instantly
collapse - but ever so slowly dips until a bottom is reached."
Other Important Developments
Rivaling the importance of political change is the persistent
economic deterioration in the eurozone's fundamentals.
Profit Strategy newsletter
noted, "The velocity of credit downgrades for Eurozone governments
has been increasing." More importantly, the downgrades which were
originally limited to fringe countries like Greece and Portugal,
have now moved to more significant economic partners like Italy,
Spain, and France.
Europe's own bailout vehicle - the European Financial Stability
Facility or "EFSF" itself has experienced credit downgrades because
of the weakening financial strength of the partnered countries
Even without the threat of sovereign debt defaults, the stock
market cratered more than 50% in value from its 2007
The past is not prologue and that's why the ETF Profit Strategy
newsletter has defined key trading levels for the euro, recognizing
that no significant moves can occur without a break above or below
key support/resistance levels. While politicians can and do lie,
the technicals don't.