Europe’s black cygnets

Published on IG Markets, February 9, 2012.

Although the Greece default is the very obvious European black swan at the moment I thought it would be prudent to point out two other things happenning in Europe over the next 12 months that certainly have the potential for evolving from a cygnet into something bigger. 


There a number of elections occurring across Europe over the next 12 months that have the potential to de-rail the current European status quo.

Greece itself is supposed to be having a national election in April which is adding to the current debacle. Greek party leaders have more than one eye on their electorates at the moment which means the bailout negotiations have politicking on top of all the other issues. The consensus appears to be that Greek politicians are playing to their electorates, but will fold at the last minute. The idea being that they will be able to say to their voters that they put up a strong fight, but will ultimately do what is demand by the rest of Europe. This is obviously a bet on a politician’s behaviour, so there is obvious downside risk.

Greece elections, however, are not the greatest concern in my mind. Greece will be defaulting in some form or another this year, the elections influence is simply a question of how ‘messy’ that default becomes.

Germany also has two state elections this year which are a chance for Merkel’s Christian Democrats to regain the national majority they lost last year. It is believed that the worry about these election result was the source of the recent hamstringing of Angela Merkel by Volker Kauder, the floor leader of her party. Latest polls have Merkel’s popularity at a two year high, however the results of the next state election in Saarland, to be held on March 25, are anything but predictable given recent history …
(full text, charts, related posts and a video, 2.42 min).

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