Monday, June 20, 2011

Politics First, Economics Second

Last Friday, on a day of high quarterly uncertainty, the market closed up, largely because of comments out of the EU that they were close to a deal on Greece.  However, over the weekend, it was announced that the decision would be delayed.  As a result, futures indicate the Dow will drop about 60 points at the open.

Ostensibly, the delay is to allow time for the German politicians to explain to the hard-working, long-working Germans why they need to spend even more money to protect the early-retiring, over-benefited Greeks, which is certainly a tough sell.

The truth is that the EU wanted to help the Greek prime minister survive a no-confidence vote tomorrow.  It will be very bad indeed if he doesn't survive.  His opponent will likely reject further austerity measures, which are already painful, and the EU will walk away from further bailouts.  As much as I hate to admit it, it is a logical negotiating strategy, but investors will pay the price of delay . . . at least for today and tomorrow.