The markets in Europe forgot it was the holiday season

August is holiday season in Europe. Businesses, and indeed governments, tend to wind down for a month, and employees (those that can still afford to!) slope off to sunnier climes.
 
Politicians, particularly, in the European Union countries, have not been able to relax on their summer sojourns this time around. The markets have continued their falls unabated.

“Time and tide wait for no man” is an old English expression, signifying that no one is so powerful that they can stop the march of time. Over the past month, the limits of the power of politicians has been demonstrated in their failure to stem the significant falls in the bond and equity markets across the main European countries. 

On July 21st, a second bailout for Greece was agreed. However, this will not be implemented by eurozone parliaments until mid-September. It clearly cannot come soon enough. Throughout the month of August, the fear and uncertainty has swept through Europe, and has now made the cost of borrowing for leading eurozone countries such as France, Spain and Italy, significantly higher.

European banks have been hardest hit in terms of their share prices. Indeed, some bank stocks in France, for example, are down 33% since the start of this year. This has created a situation where many banks in mainland Europe, and in the United Kingdom, are now trading at a deep discount to the value of their assets.

With uncertain earnings outlooks leading to a downgrading of bank stocks by leading rating agencies, the main consequence of all this will be an increase in their borrowing costs too. Increased funding costs could lead to another credit crunch.

Politicians have so far been unsuccessful at containing the crisis. The Spanish and Italian economies are far bigger than those of Greece, Portugal and the Irish Republic and the European Union would struggle to bail them out if that became necessary. Therefore, the markets in Europe can no longer afford to go untreated.

They have shown nothing but contempt for the travel plans of politicians over the month of August. So it is not just time and tide that wait for no man; this can be applied to equity and bond markets too!