Don't Ignore the Euro Zone

09/23/2013 12:00 pm EST


Jim Jubak

Founder and Editor,

Most US investors are fixated on domestic developments but MoneyShow's Jim Jubak points out there is an important event in the Euro zone that may have a global impact.

I know it has been hard in the first half of September to think that there is any place in the financial world that counts besides the Unites States, what with sitting there going, "What is the Fed going to do, what is the Fed going to do on September 18?" Where we are thinking about, "Is Congress going to shut down government?" "Are we going to get a big battle over the debt ceiling that might raise the issue of US default?" But there is another date out there that is really important and another continent that is really important. The continent is Europe and the date is September 22, that is the date of the German elections.

Right now it looks like Angela Merkel, who is personally very, very popular in Germany, is not going to have any trouble getting a plurality of votes, but it does not look like, with her party and her allies, that she is going to be able to get a majority in the German Parliament that is going to be some kind of coalition government. The problems she really faces is that particular coalition partners are running very, very weakly, so it is not clear what the coalition is going to be. This is an issue because there are a couple of really big looming problems after the election. One is that Greece needs another, somewhere between $5 billion and $12 billion dollars, depending on who is doing the count. The Greek Prime Minister has said that he is not willing to entertain any more austerity. The IMF, one of the big funders, was saying we cannot put any more money in until things balance. It is going to be a big issue, and for Merkel, who has been basically running on a platform that has said implicitly that we are not going to bail out Greece again, even though her Foreign Minister has said that we have to, so that needs to get resolved.

The other thing that is a bigger issue is Portugal. Portugal is about $16 billion Euros short for 2014. They are going to need a second bailout. They cannot go to the capital markets to raise all that money, it is more borrowing than the markets will sustain, so they are going to need a second bailout from Europe. It is not clear there is much political will in Portugal for more austerity. It is not clear that there is much political will anywhere in the Euro zone for that size bailout. It is going to be a really big problem, these are the things that Merkel faces after having run a campaign that basically tried to soft pedal, downplay, and ignore the issue of, "Well, what happens with the Euro, and the Euro debt crisis after the election is over?" I think after the election is over, we are going to find out.

This is Jim Jubak for the Video Network.

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