Volatility over Greece

Markets

What a day in the Markets this past May 6th 2010. Two things were part of the problem. The first is easy to address. There was an unexplained glitch in the trading system which is being corrected by the various stock exchanges. The second is Europe and how are they going to deal with Greece.

With Greece this is the first of the EU nations needing help and falling outside of the rules for being in the EU. Those rules designed to protect the entire EU group is putting the union into a corner. Either they help Greece or let it go bankrupt. The second option will put other EU nations in jeopardy because the lenders look at the EU as the co-signer of a loan. Without that co-signer the other nations, Portugal, Spain, Ireland and Italy may see higher interest for higher risk.

Expectation is they will not let Greece down but there will be both a financial and  political cost to all involved. To let them fail would be worse but the goal is to make the best of a bad situation. Once this passes, since May is the time to have this resolved, we should see things improve overall in Europe. This will be after everyone digests the impact of the various solutions in place to help Greece, balanced by the reaction of the people of Greece which will follow. The time frame of Europe’s recovery is over the next few months, this will be behind us and the fundamentals of Europe will show it is still very good.

To put this into perspective, Greece is not the main player in the EU, but France and Germany are. What is also good news is Germany is the only other country in the G7 along with Canada that has the best shot of recovering quickly from the Global downturn. Has Germany’s situation changed because of Greece? I think not. But helping the fellow EU members is in the best interest of itself and the other EU members. It has the resources to help so it must.

Today this means the Europe is a better buy that it was in April, it also is part of the overall cycle in the markets where there is a pull back before the next run up in the prices.

If you have any questions or comments about this article or suggestions for future articles please email.

Jonathan Taylor
Chartered Financial Planner

6851 Morrison Street
Niagara Falls, Ontario  L2E 2G5
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