Investors shouldn't dismiss this as storm in a teacup
Published 27/05/2014 | 02:30
European markets seemed remarkably unperturbed by Friday's elections. The support for Independents and extremists evident in almost every corner of the continent has done nothing to shake investors' belief that Europe is on the mend.
Anybody looking at trading on the Dublin stock exchange rather than the news would have been completely unaware that we lost an austerity-supporting Tanaiste yesterday and gained several hundred elected representatives who have a mandate to reverse austerity policies.
Among Dublin's small stockbroking fraternity, only Goodbody's Dermot O'Leary deemed the elections worthy of any comment in his morning note yesterday.
Is this indifference sensible? It is a fallacy to think, as some do, that the markets are always right.
The markets have a mixed record when it comes to reading the runes on matters European. Investors were slow to understand the significance of the credit crunch in 2007 and then slow to understand the significance of the crisis as it unfolded. Many investors were then slow to grasp the significance of Mario Draghi's promise to do what it takes shortly after his appointment.
The markets are often right in dismissing political events as little more than a storm in a teacup but they may be wrong in this case.
Eamon Gilmore was an unexpectedly swift victim of the new order. The Tanaiste was an important member of Economic Management Council and his departure places a question mark over the course of future government economic policy. Does anybody believe his replacement with, say, Joan Burton will have no effect on government policy?
The pattern could be repeated in many other governments around Europe, which now have to look over their shoulders as they plough ahead with unpopular measures. This fracturing of the old, sclerotic and often corrupt political order may well be a good thing in the medium term but it leaves Europe's political system vulnerable in the short term should a new financial crisis emerge unexpectedly.