The Washington Post put up an article this morning stating that the German lower Parliament (the Bundestag) voted 390 to 72 (with 139 abstentons) in favor of the Greek bailout; despite general opposition from the public. The Greek bailout amounts to a cool $141 billion being sent to Greece to “…defend the stability of the common European currency…”, according to Wolfgang Schlauble; the German Finance Chancellor. Not surprisingly, Portugal and Spain are up next.
I don’t know about you guys; but my confidence in the Euro seems to be lowered by the fact that all these countries are waiting in line for a bailout. Who knows if the countries that have some assembly of wealth have enough or even want to bail these countries out. If one country says “no”, the whole thing falls down, and confidence in the Euro would drop heavily. Essentially what I’m saying is; the Euro may be doomed slowly, or may go spiraling down. Right now it looks as if confidence will go down slowly.
What does this mean to the DJ? Well, there’s no argument that international trading is a heavy influence on the Dow. If the bailout does wind up going through, the Dow will not take as big of a hit as it would without the bailout (duh). However, if this chain of bailouts occur, or if one economy that needs a bailout does not receive one and go into collapse or austerity; there will be massive financial consequences. Remember that glitch on the stock market yesterday? Yeah, a lack of bailout would cause something like that, but there will be no blistering quick recovery; like there was with the event yesterday (we still closed down by over 300 points). Maybe not so extreme (we may close 600 or 700 down instead of 1000), but it would still be rather significant (roughly %4-8). I’d also venture to say something of that magnitude would occur each time a bailout was denied to an economy that needs it. If you think this can’t happen in the States, you’re dead wrong as well. Just as countries in Europe act as agents of the EU, states in the United States act as agents of the federal government. If California goes down, the other states would be responsible for shouldering the federal debt absolves. This is where I make a serious case of state secession.