The Euro Crisis is ready to show its ugly head again.  The short-term fix for Europe, which included the ECB dramatically expanding their balance sheet and banks buying sovereign debt, is starting to wear off.  Over the next few weeks, there are some major European events that might spark a more significant European crisis:

1) The French election this Sunday and run-off on May 6th.   Polls consistently show President Sarkozy losing to Francois Hollande.  The ramifications of this could be enormous.   Hollande espouses two main themes: increase spending by roughly 20% and raise taxes on those making more than a million Euros to 75%.  If Sarkozy loses, Merkel will be losing her number one friend in Europe.

2) Greece also has an election on May 6th.  This is important because the two Greek parties that signed off on the bailout promising to keep austerity measures in place are both doing poorly in the polls – Democracy 18.2% and PASOK 14.2%.  Greeks are angry with six years of austerity and the entire EU package may unravel with this election.

3) Spain is in trouble as bond rates have rocketed higher in the last few weeks.  The Spanish economy is as bad as Greece was two years ago.  Austerity and high unemployment is not a recipe for success.

The complacency in the markets over the past few months might once again be taken over by “Euro Crisis Fear”.   It’s Ground Hog Day in Euroland.

Sincerely,

Your THOR Team