If you haven’t been following the news lately, you probably have zero interest in what is going on with our friendly neighbors across the pond in Europe. Take it one step further and I can guarantee you that you probably have no clue why or how what happened in Europe impacts the United States stock market.
So, let’s start unpacking what happened in Europe over the past couple of weeks.
Silvio Berlusconi, the former Prime Minister of Italy, resigned and ended a tenure that was full of controversy and scandals. He left Italy with an abundance of debt problems and divided as a people.
Taking over for Berlusconi will be Mario Monti, a former European competition commissioner. With Monti’s takeover, he will also bring what is called a “technocratic” government, consisting of primarily technical experts as opposed to more political-type.
Defending his technocratic stance, Monti explained, “The absence of political personalities in the government will help rather than hinder a solid base of support for the government in parliament and in the political parties because it will remove one ground for disagreement.”
The idea of a technocracy was toyed around within the United States for a little bit during the Great Depression. However, as Roosevelt’s New Deal came to light, support dwindled and technocracy was out of the picture.
Italy wasn’t the only country to have a shakeup as a result of the Eurozone debt crisis.
George Papandreou over in Greece was forced to step down as prime minister as well after deciding to put an unpopular European bailout plan to a referendum. His position will be taken over by Lucas Papademos, who is expected to win a significant endorsement from the country’s 300-seat parliament.
Papademos is pretty decorated. He received his bachelor’s, master’s, and doctoral degrees from the Massachusetts Institute of Technology, and taught at Columbia University for almost a decade. While serving as an economic adviser to Papandreou, he was a visiting professor at Harvard’s Kennedy School of Government.
To put it succinctly: he’s a pretty smart dude.
So, when the smoke settles in Europe, how will the US markets be impacted?
That’s a great question and does not have a clear-cut answer by any means.
The crisis in Europe has directly affected the stock market lately. The other day, there were negative headlines on the European newspapers and the stock market plummeted.
Whenever optimism comes out of Europe, stocks rise, and whenever pessimism from Europe emerges, stocks tumble. There’s definitely a direct correlation.
The market is already directionless, which makes matters worse. One day its up, one day its down. Monday it skyrockets, Tuesday it nosedives.
What I can tell you is this – when Europe gets their act together, expect Wall Street to have a little more direction, just don’t expect it to happen anytime soon. Dramatically changing the governments of two major Eurozone contributors will not happen overnight.
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