Two European elections, one feared outcome

thenews 2013.02.23 15:52

All eyes this weekend will be on one large economy in Europe, Italy, and one small one, Cyprus. Elections there could send the markets back into a frenzied state of uncertainty over the euro's future.

The outcome of two elections this coming weekend could push Europe back to the edge of economic calamity. Sovereign bond investors in London and on the continent will be watching voter returns in Italy and Cyprus intently to see if anti-bailout and anti-austerity candidates triumph at the polls. If the results lead to radical or deadlocked governments in either nation, the markets could punish government bonds throughout the eurozone periphery, reigniting investors' fears of a potential collapse of the euro.

It has been some months since the eurozone debt crisis dominated world headlines. Steps taken by the European Central Bank, along with promises of reform from member nations helped to calm the jittery bond market, thus ameliorating the crisis.

Unfortunately, European leaders have since squandered the breathing room that investors gave them to deal with the root causes of the crisis. The formation of a banking union seems far off, and the chance that we could see a truly united Europe with a common fiscal policy appears now to be a flight of fancy. Despite these disappointing results, investors have pretty much given the continent a pass as it appeared that the most troubled nations in the Eurozone were containing their fiscal largess and were taking concrete steps to stabilize their uncompetitive economies.