An “atomic bomb” is about to blow up in “the confrontation between Paris and Brussels.”
Following the grim market response to European Central Bank President Mario Draghi’s latest monetary policy pronouncements, Europe is approaching another make-or-break moment comparable to the crisis of 2012. The summer quarter ended this week, and financial markets delivered their judgment on just how bad things are, pushing the euro down to its lowest level since September 2012. Europe’s quarterly stock market performance was the worst since the nadir of the euro crisis. The question is whether the miserable summer will give way to a milder autumn. Or whether the summer squalls will turn into a catastrophic tempest.
Astonishing as it was to contemplate the breakup of Europe’s most stable nation-state threatened by last week’s Scottish referendum, we now have an even more extraordinary possibility. In the days since the Scottish voters rejected secession 55 percent to 45 percent, a new threat has suddenly appeared to blight Britain’s political and economic prospects for years ahead. It now looks like Britain may be dissolved by one rogue opinion poll.
While recent opinion polls have swung slightly back toward the “no” camp, there remains a distinct possibility that Thursday’s Scottish referendum will trigger a previously unthinkable breakup of Britain.
Until this week almost nobody outside Scotland took very seriously the possibility that Europe’s most stable and durable nation, the only big country on earth not to have suffered invasion, revolution or civil war at any time in the past 268 years, might soon be wiped off the map. It now seems quite conceivable, however, that the United Kingdom of Great Britain and Northern Ireland will cease to exist after the referendum on Scottish independence to be held on September 18.
This week’s theatrical resignation threat by Manuel Valls, the French prime minister, combined with deep European anxiety about deflation, suggest that the euro crisis may be coming back. But a crisis is often an opportunity, and this is the hope now beginning to excite markets in the eurozone.
As Wall Street hit another new record Thursday, it is worth considering what could cause a serious setback in stock market prices around the world. Since I started writing this column in 2012, I have repeatedly argued that the rebound in stock market prices from their nadir in the 2008-09 global financial crisis was turning into a structural bull market that could continue into the next decade.
Why is the world economy still so weak and can anything more be done to accelerate growth? Six years after the near-collapse of the global financial system and more than five years into one of the strongest bull markets in history, the answer still baffles policymakers, investors and business leaders.
With the stock market continuing to hit new highs almost daily despite the appalling geopolitical disasters and human tragedies unfolding in Ukraine, Gaza, Syria and Iraq, there has been much head-scratching about the baffling indifference among investors. Many economists and analysts see this apparent complacency as a symptom of a deeper malaise: an “irrational exuberance” that has pushed stock prices to absurdly overvalued levels.