On Sunday, Greek citizens voted for the euro. On Monday, investors voted against it.
And so, an election that we expected to avert an international financial meltdown ultimately corresponded with one.
The narrow victory of the New Democracy party on Sunday was widely seen as a sign that Greece is not ready to abandon the one-currency project yet.* But this morning, Spain's yield on the ten-year bond blew past the bright red line of 7%, which divides the merely-terrifying-and-unsustainable territory to the land of screwed-without-a-massive-bailout. The bloc's fourth biggest economy is one step closer to bailout or bust.
Spain is bigger than Greece. Four times bigger, in fact, as measured by GDP. Which means that when Greece kicks the can down the road and Spain implodes, the markets ignore the sound of foot hitting tin and listen instead to the implosion. Indeed, as Spanish yields soared, the stock market collapsed 2.5% ...
By awarding more seats to New Democracy than Syriza (the anti-euro and anti-bailout party) Sunday's election in Greece was not good news for the future of the euro, so much as the absence of obviously and immediately horrible news from Greece. But meanwhile, around the continent, there is so much obviously and immediately horrible news that it has overwhelmed whatever good vibes investors might have felt from Syriza's narrow loss.
Even in Greece, the election is not likely to do more than kick the bruised can down the road for a few more months. An election won't bring down Greece's unemployment rate, or change the fundamental math of Greece's insolvency, or make the half of Greece that voted against the bailout and the euro any less likely revolt against the austere demands of the troika. The most important election in modern Greek history was, fittingly, another lesson in modern democracy: Lots of hope, and nothing's changed. Your continental meltdown will proceed as scheduled...
* Maybe. Joe Weisenthal points us to this analysis by Jefferies' David Zervos that if you add up the totals for anti-bailout and pro-bailout parties, both sides come out to around 50%: "So while tonight the Greek people did not pull the EMU rip cord, they came VERY close. And a "majority" of Greeks will not be happy with any continuation of MoU policies. We may have postponed the inevitable Greek exit another 6 to 12 to 24 months, but this result is NOT comforting"