Prior to the French and Greek elections, the latest developments in Europe mainly revolved around Spain; worries over Spain’s economic situation surfaced after the European Central Bank’s long-term financing operation in February, which helped stabilize the Eurozone, and they have since increased.
Directly following the €529.5 billion infusion offered by the ECB, the Spanish government signaled it would have difficulty meeting its fiscal deficit target. Due to the country’s uncertainty, global investors started to focus on Spain, and to a lesser degree, on Italy.
Luc de la Durantaye, vice-president of global asset allocation for CIBC Asset Management and manager of the Renaissance Optimal Inflation Opportunities Portfolio, says this is most apparent in the equity and fixed income market—Spain’s performance, for example, has fallen by 20%. In contrast, Germany’s equity market is performing well, up nearly 14% year-to-date.
“The election process in France is adding to the mounting pressure on the Eurozone,” says de la Durantaye, “but many of the related market effects of the country’s political situation have already been priced in, and haven’t acted as a major market mover as yet.”
From a European perspective, the issues surrounding Spain are more serious, but the long-term financing operations have helped contain volatility.
“I wouldn’t say we are over the European crisis,” says de la Durantaye. “The European process includes market pressure, which is crucial since it leads toward further reform and further integration.”
He adds, “That being said, the effects of crisis have been more moderate than expected.”
In his view, when comparing the current situation with the 2010 and 2011 crisis, market volatility has improved and the global impact remains mild.
“In all the challenges and turbulence that Europe has faced, there’s been some improvement in the way officials are managing the crisis,” says de la Durantaye, “Work still needs to done, however, and more reforms will need to take place. These will be difficult to implement.”