Yesterday, the Dow Jones Industrial Average (DJIA) was down by 150 points. Then, when the Supreme Court Decision, upholding President Barack Obama’s Affordable Care Act (ACA), was announced, the Dow dropped by another 25 points. In the last thirty minutes of trading, however, the market moved strongly upward due to “Good News” from the EuroZone (the seventeen countries sharing the common currency). The DOW closed down by only 25 points.
The Debt Problem in the EuroZone has been hanging over the World’s Financial Markets since February of 2010. If just one country left The Zone, no one knows what would happen because it has never happened before. And, what would happen if the EURO just folded and the various countries all went back to their traditional currencies?
Mutual financial responsibilities would have to be agreed upon before the division. How long would it take to print all of those Drachmas, Pesos, Francs, Deutschmarks, Lira, etc? Such a break-up–whether the exit of one country or a total split–would impact Intra-European as well as World Trade. European Countries that are not members of the EuroZone would be impacted–as well as the US, and most other countries, but perhaps to a lesser extent.
Countries like Greece and Spain would potentially sink into Recession if they went on their own. In that case, their most educated and capable citizens would probably move to stronger countries, such as Germany or Holland. As even the stronger countries are facing very minimal growth, an influx of workers, initially going into their Safety Net (Benefits), and adding to the Unemployment Rate would weaken those economies.
Germany is obviously the largest and strongest Economy in the EuroZone. So, why do Germans resent being asked to bail-out weaker countries that, in many cases, overspent and have very liberal benefits and retirement procedures?
Germans fear Inflation for reasons going back to the Hyperinflation of 1925. It is said that it took a wheelbarrow of old, OLD Deutschmarks just to buy a loaf of bread. That’s why Germany preaches Fiscal Austerity. Also, some common sense.
Meanwhile, the Berlin Wall came down on November 9, 1989–allowing East and West Germans to mingle permanently. West Germany agreed to merge with East Germany and financed the entire amount. They saw that as taking responsibility for their Countrymen. Germans certainly look differently on the residents of Southern Europe who chose not to adequately manage their own finances.
Over the past 29 months, the EuroZone Debt Crisis has caused considerable market swings. It seems that whenever we get good news, a week or two latter the air seems to come out of the “Wishful Thinking Balloon”. How many times will the markets move on, what can now be perceived as, questionable information?