THE PRIMARY RISK IN EUROPE

Ed Harrison has a nice breakdown of the situation in Europe here.  He hits the nail on the head with his conclusion:

“The point for policy makers is to socialise enough of the bank losses onto taxpayers in order to recapitalise the banks, survive the crisis and maintain the status quo. Taxpayers will accept this if the economy is robust enough. As an investor, you should see this as an uncertain political situation. more than most. That means avoiding periphery sovereign debt until the situation stabilizes.”

I’ll keep this short and sweet because the conclusions have become quite obvious in my opinion.  Europe will attempt to piece this union together at any cost.  That means we must move towards greater political and fiscal unity.  Defaults and defections simply will not be allowed as they will be too destructive for all involved – particularly the c0re nations who are now the winners in the Euro mess.   But a great risk remains.

There is some chance that the political situation in the periphery becomes so messy that the citizens of these nations demand real change.  That is the event we need to keep an eye on because it is this event that could override the EMU’s position and take the power back into the hands of the periphery nations and their people.  And while I don’t particularly care how Europe becomes an autonomous monetary system my investment portfolio most certainly does and the situation I have described here has the potential to be even more disruptive than a Lehman bankruptcy.   I’ll be keeping my ear to the ground.