Politics Make Markets Nervous

Politics must reassert itself over finance. This is the mantra being heard, on both sides of the Atlantic, since the outbreak of the 2008 financial crisis. This wishful thinking is about to happen. By the yardstick of agreement on the second bailout of Greece, euro zone leaders are rejoicing that “political Europe has emerged!” And Barack Obama is waging a Homeric political battle in the United States on the — technical — question of raising the debt ceiling. Everyone knows that, for 30 years, Democrats and Republicans have always agreed to raise this famous ceiling, with neither drama nor furor. But should we rejoice at this return of politics into the affairs of finance, especially when it takes a… political turn?

In Europe, the new plan for Greece is certainly political; in other words, the fruit of short-sighted compromise. Its implementation will quickly come up against the reality principle, notably the Stability Fund’s financial means and jurisdiction. Thus, the summer break will be brief. Faced with increasingly radicalized political opposition, the U.S. crisis will soon take over. The moderate Republicans want to turn the debt question into an electoral machine and their extreme wing attempts to question the very role of the federal government. Political debate is turning into ideological struggle. It is this political intrusion that makes markets so nervous. To explain its poor results, Goldman Sachs soberly evoked it by pointing to an environment that is “hard to analyze.” It is going to become very difficult for financiers to anticipate the consequences of a debate that is quickly spilling over to the extremes, both right and left.