European Elections — What Do They Mean?

European elections produced the equivalent of a massive political earthquake. The aftershocks are apt to affect financial markets.

John Rubino, speculating on the outcome before the results could be fully digested, had this to say:

Electing people who promise to withdraw their countries from major international organizations and go back to previous ways of running immigration and monetary policy would call the euro into question as a reserve currency. That in turn would send the leveraged speculating community, which has recently gorged on PIIGS country euro-denominated bonds, into chaos.

It is too soon to know the full extent of the damage that may be inflicted on financial markets. A disruption of this sort, perhaps presaging the breakup up the European Union, should not be underestimated. Equity exposure in Europe and the US could become riskier and currency markets could become extremely volatile. For investors, the US could be the beneficiary of a “flight to safety” reaction, at least initially. Longer term the effects in the US are apt to become negative as a result of currency market disruption.euro

In hindsight, I am still amazed that Europe was able to create a common currency. It is not surprising that it is in danger of failing as it was a Statist dream that made little economic sense. It should never have been imposed, but the One-Worlders forced it through. As difficult as it was to imagine it coming together, it is more difficult to see how it can be dismantled without severe effects on markets.

The Financial Times opened their coverage this way:

After five years of economic crisis, the 2014 elections to the European Parliament were always expected to produce victories for the populist parties that reject the EU and its political values. And so it has proved, with fringe and nationalist movements dealing a blow not just to the European project but to national governments who appear out of touch.

Make no mistake, these outcomes are huge. In addition to financial implications, they may portend a similar result in our elections later this year.

Seemingly unrelated issues like this one pointed out by Zerohedge might just reflect the nervousness from currency fears:

First Germany, Now Austria Demands An Audit Of Its Offshore Held Gold

First it was Germany, now another AAA-rated European country is starting to get concerned about its hard assets. Overnight Bloomberg reported that following in Bundesbank’s footsteps, Austria will audit its gold reserves located in the UK, which represent 80% of its total gold holdings. This gold reserve reviews held at Bank of England in London will be first conducted by external auditors, Christian Gutleder, a spokesman for the Austrian central bank, says via telephone. Gutleder explained that the Central bank has checked its reserves regularly in the past, adding that gold reserves haven’t changed since 2007. Which begs the question: why check them now then?