Will Greece Mess Up The U.S. Stock Market Rally February 2012?
Stock market reactions to Greek headlines will be important next week.
Greece is back in the news due to the possibility it may need to default on its debt. In Athens today, rioters were active and marches were held to protest austerity measures. Greece doesn’t have many alternatives. The country can implement tough austerity measures that would add to the already high unemployment rate at 21 percent or abandon the euro which could increase the five year recession the country is currently experiencing.
The probability the a Greek default could occur may have risen in the short term because the divide between the popular appeal for austerity measure and the political economy realities that make leaders want to stay part of the euro-zone has grown larger as evidenced by today’s riots. A few weeks ago, economists and analysts were considering the possibility that Greece would default and that the euro-zone would be divided into two parts the “Core” and the “PIIGs”. The discussions about “Two Europes” need more attention and have not been part of recent notions or headlines on how to handle the Europe debt crisis as a whole. Individual country-by-country fixes may prolong the structural issues that need repair regionally. Greece leaving the euro could result in a possible Japan-like lengthy recession but it the population seems to be willing to endure this for the ability to control its own currency again.
The Greek debt issue will continue to make headlines for the next few weeks until Italy or some other European country dominates the news. This could have a negative impact on U.S. markets but traders have become somewhat conditioned to expecting negative news from the region so it is unclear how much of an impact it will have as the Greek debt crisis goes into a new phase. Negative news from Europe could curb the U.S. stock market rally if economic data from the U.S. begins to get weaker and the jobs market deteriorates.