Based on the action of stocks Monday, it would seem investors favor the possibility that Europe might finally be rid of Greece. Or it may be that investors have seen the light, and have finally realized that the age of austerity was a dark one. Or, perhaps change of any sort would have been celebrated by a distressed market.
European shares were mostly higher Monday, even after Greeks unseated their socialist rulers, PASOK, the ushers of austerity. So it would seem that more than their fear of a break down in confidence in the EU (that might drive Spanish and Italian bond yields higher), investors may be worrying about keeping a lumbering Greece within the group. But with France electing a socialist, who seems intent on leveling the playing field between the rich and poor, and who does not favor austerity, it would seem maybe something more important is afoot.
Bucking the trend, the Global X FTSE Greece 20 ETF (NYSE: GREK), Hellenic Telecommunications (OTC: OTCPK:HLTOY) and Greek shares generally tumbled, as the New Democracy party did not gain clear control. The result was likely due to the new democrats' role in the current catastrophe. Instead, the Radical Left Coalition, or Syriza, finished second in Parliamentary voting. Anti-austerity parties, including even an anti-immigration organization, won seats at the cost of the mainstream, as Greeks expressed their frustration with austerity clearly.
But why are European shares higher, given that Greece could theoretically now reject the austerity prerequisites of European and IMF aid? The Vanguard MSCI Europe ETF (NYSE: VGK) rose 1% Monday, and the iShares S&P Europe 350 (NYSE: IEV) was up 0.8%. The iShares MSCI Germany Index (NYSE: EWG) gained 0.5% and Deutsche Bank (NYSE: DB) rose 1.6%. The popular view seems to be that Francois Hollande, the new French leader, might listen to the reason of German Chancellor Angela Merkel and others now that the election is over. However, I say there is more to it than that.
I think the market has spoken in its efficient and infinite wisdom, and what it is saying is that the age of austerity is over and good riddance to it. The French CAC 40 Index gained 1.65% and the iShares MSCI France Index (NYSE: EWQ) added 1.3% to its stature. American investors were confused, with the SPDR S&P 500 (NYSE: SPY) and the PowerShares QQQ (NASDAQ: QQQ) erasing initial losses. Maybe it's just hope that's selling to investors these days; perhaps change of any sort would be celebrated by a desperate market.
In that case, when the high wears off and investors find not much has changed with regard to the lagging economy, stubborn unemployment and burdensome debt load, and on top of that, pressure builds on other nations on the fringe, the celebration should prove short-lived.
It could take time for prospective growth initiatives to have effect, so patience may wear thin. However, shifting the burden from the poor to the rich could be just a vote away for the French and the Greeks. That is precisely why there's talk today of a potential run of money, with its destination divided, but its origination now decided for some.
Money has been leaving Greece for some time now though, given the duration of its crisis. For France, it's a new phenomenon. For Europe, it could be the way of the future, and for the United States, it could be a trend that catches on too.