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The Dutch Debacle And Market Ramifications

As the European sovereign debt crisis has meandered between bailouts, global interventions and central bank rhetoric on one side and imminent disaster on the other, we have all wondered what the death knell could sound like for the Euro and possibly the European Union as we know it.

I have always claimed that the troika of the ECB, IMF and EU will continue to support the weaker countries in the Union as long as they had the political support of the stronger Northern European countries. The day that support started to erode, so would the propensity for bailouts. I believe that this past weekend brought the first signs of that eroding support.

The Dutch governing coalition collapsed on Saturday when far-right politician Geert Wilders pulled out of budget cut talks, saying it was not in the Netherlands' interest to meet the deficit limit of 3% imposed by the new European fiscal pact.

Highlighting widespread voter anger over EU-imposed budget cuts, Mr. Wilders said he could not allow Dutch citizens to "pay out of their pockets for the senseless demands of Brussels". "We don't want to follow Brussels' orders. We don't want to make our retirees bleed for Brussels' diktats," Mr. Wilders said.

The loss of Mr. Wilders' support left the conservative government of Mark Rutte, prime minister, with just over a third of the seats in parliament. The fall of Mr. Rutte's government is ironic because the Dutch were among the most vociferous supporters of strict budget limits during negotiations over Europe-wide fiscal reforms at Brussels summits last year.

The fall of the Dutch government has clearly brought to the forefront the seething anger among the populace of the responsible countries, who are getting exhausted of bailing out the irresponsible fiscal policies of the failed ones.

Therefore it is no surprise that the biggest winner in the Dutch elections could be the far-left "eurosceptic" Socialist party, which has seen its support rise to as much as 20 per cent of the electorate over the past year. Meanwhile, Dutch analysts said the inability of even the prosperous, deficit-averse Netherlands to generate voter support for Europe-directed budget cuts called the sustainability of the EU fiscal pact into question.

The other major event over the weekend further highlights this growing tension in a very telling manner. In the recently concluded first round of French elections, Hollande won 29% of the vote, according to early projections from four pollsters. Sarkozy got 25.5% and the anti-euro Marine Le Pen won around 19%, according to the polls.

The larger than expected support for Le Pen and Hollande clearly highlights the growing angst among the French populace regarding the severe austerity measures they have had to bear as well as the unpopular support for bailouts.

While it is hard to predict an imminent collapse of the Euro, these recent events could set the stage for a very turbulent summer. In this market environment, ETFs like EPV and EUO that benefit from a selloff in the Euro as well as the European stock market should do extremely well. The other beneficiary could be gold, which could once again be seen as a haven for devaluing fiat money.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.