You might be aware that the Stock Market had one of its best days, last Friday, over the past year. So, today the Dow spent most of the day down; bur, not by a troubling amount. Two steps forward and one back is a common event in the US Markets. But, by the Market Close, the DOW was down less than nine points–a none-event. Also, June has been very good for the Financial Markets.
Now, I do not intend to constantly blame the EuroZone for everything that goes wrong; but, it still is the overwhelming obstacle that is overhanging the World Financial Markets. Furthermore, today EuroStat, the European Union’s Statistical Agency, reported that the Unemployment Rate (11.15%) in the EuroZone (the 17 countries sharing the Common Currency) is now the highest since the EURO was created in 1999. Also, European industrial production is down. And, apparently there is not a solution in sight.
In France (the Euro’s second largest economy), the French National Auditor, Coeur des Compte, reported that new President Francois Hollande would need to cut Six Billion EUROs from this year’s budget to meet the Fiscal targets. Next year, things will be tougher as France must cut 33 Billion EUROs to meet the EU’s (European Union’s) three percent limit of Deficit-to-GDP. This has not been enforced in the past.
Remember that a Budget Contraction does not reduce the Deficit. If the denominator (Economic Activity) of the Debt-to-GDP ratio goes down as the economy contracts, and the Numerator (DEBT) remains unchanged, the ratio just deteriorates. The situation worsens.
If you have read previous posts on this blog, you know that I have very extreme reservations as to the Europeans ever solving the EuroZone Debt Problem–AND their Austerity Approach. It has been going on for almost 29 months and all that we see is stop-gap measures. Meanwhile, the contagion spreads–a/k/a “Rome Burns”.
So, why are the US Financial Markets rallying? If the EuroZone were to fold, or even one country would leave it, no one knows what the impact on World Markets would be. REMEMBER, THE MARKETS DO NOT KNOW HOW TO HANDLE UNCERTAINTY.