Bartiromo - In This Week’s Brief

Europe’s Lack of Leadership

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As the Eurozone continues to languish over its debt-burdened members’ solvency, concerns have been reflected in the markets from Shanghai to Sao Paulo.

Even the Federal Reserve’s unveiling of Operation Twist, to lower long-term interest rates by selling $400 billion in short-term bonds and using the money to buy long-term Treasuries couldn’t stop the markets from swooning. Most leaders I’ve talked to feel that the effort alone isn’t going to help change the underlying economic conditions and that as long as Europe remains on the precipice, another Fed stimulus is a small part of the solution to the global financial challenges we face.

The biggest concern financial leaders have is that Greece will eventually default — and perhaps other Eurozone nations — but there is no plan in place for that to happen in an orderly fashion. What’s more, many people have expressed concern about the lack of economic and political leadership in Europe at this point.

This lack of leadership brings along with it a lack of long-term commitment to stocks and while we’ve seen this play out in the U.S. market through the summer, now Europe’s economic woes are having its own effect on the global markets. In essence, most of the developed economies' stock markets are in the hands of traders, not investors. And many people I talk with believe this dynamic won’t change until there is some leadership, whether it’s in the U.S. or from Eurozone leaders — hopefully both.

There’s an old saw on Wall Street that the markets don’t like uncertainty, so given the current economic climate, it might be reasonable to expect the markets to act like this. European banks underwrite the most emerging market debt in the world by far and Italy is the number three bond issuer behind the U.S. and Japan. A financial crisis in Europe has serious global implications, and as long as no one has a plan to resolve these issues, most corporate leaders see no reason to lay long-term bets on stocks anywhere.

Then again, much of what we’re witnessing is the same story playing out over months. Greece has been a problem for more than a year and the Eurozone and Europe’s broader financial and economic systems have been under stress since 2008. Many fear that instead of undergoing fundamental systemic change, leaders have only been willing to explore fundamental cosmetic change.