Good news for eurozone stocks – a dollop of fudge saves the day again

Europe’s finest confectioners have done it again.

I’m not talking about the Swiss.

I’m talking about the team that cooked up yet another tasty batch of eurozone fudge on Friday.

As the latest saga of brinkmanship, mutual threats, passive-aggression and general melodrama draws to a close, it turns out that Greece and the eurozone are still sufficiently in love to try to make it work.

So how long till the next crisis? And do we really care anymore?

The only way any country is going to leave the eurozone

On Friday, Greece and the rest of the eurozone agreed to extend the country’s bailout for another four months.

There’s plenty of t-crossing and i-dotting to do. The Greeks are flinging together a proposal about how they are going to meet their creditors’ conditions, which will be examined today.

There are risks as well. The rest of Europe might say that the plan doesn’t meet their expectations. And on the Greek side, having got the people all hot under the collar, there’s a very real danger that they’ll be seen as buckling.

As the FT notes, one of Syriza’s most senior politicians – 92-year old Manolis Glezos – denounced the deal as an “illusion”. He’s got a point. As he puts it, “by renaming the troika ‘the institutions’, the memorandum as ‘agreement’ and the lenders as ‘partners’… you do not change the previous situation”.

But for all this, the fact that the two sides are at least talking suggests that the fudge will win the day yet again.

Of course, you can argue that we’ll just be back here yet again in four months’ time (or a couple of days’ time, depending on how that t-crossing and i-dotting goes).

But I think that the conclusion we need to draw from all this is that until a European country elects a government which has an explicit manifesto promise to leave the euro, we won’t see anyone leave.

Syriza could have made the case. But what it boils down to is that unless and until the electorate finally joins the dots between membership of the euro and the surrendering of economic sovereignty, there will be no ‘rebellion’, as it were.

Even then, many might think it’s a price worth paying. Greece could devalue and go back to the drachma. But maybe there are enough people in the country who actually think all this stuff might just be worth putting up with if it does force through some sort of reform. Or maybe they just like being part of the wider club of European nations.

It’s easy to forget, but while the eurozone crisis has hurt the ‘peripheral’ nations most badly, they are also the ones who have the most – in theory – to gain from eurozone membership. Getting into the club is like a badge of honour.

An exit still might happen at some point in the future. There might be enough disappointment with Syriza in Greece to force elections that result in a more radical party coming to power. But I think it’s more likely that a genuinely anti-euro party would be elected in one of the major countries that feels it would have no problem standing alone – like Germany, or even France. And that could be a long way off.

And even if Greece leaves the eurozone, we have to acknowledge that there has been plenty of time for contingency planning. If the rest of the world and the eurozone aren’t ready for it by now, well they deserve everything that’s coming. It really is hard to see an exit being ‘Lehman Brothers’ part two, simply because the angles must be covered by now.

On top of this, Greece’s economy is actually recovering at the moment. It may not feel like it to the Greeks, but they’re probably at the point that Ireland was at a good few years ago. The Greeks themselves will recognise it last – just as you’ll still see plenty of gloom about Ireland from the Irish – but from a global investor point of view, things are bottoming out and turning around. Time is a great healer.

European markets still look good value

So what does this mean for investors? The next thing to arrive on the scene is eurozone money printing. As we’ve pointed out many times before, quantitative easing (QE) has a tendency to push up asset prices – stock markets, property markets, the lot.

Europe is coming to the party late, certainly. And you have to wonder how far money printing by the European Central Bank (ECB) will end up going, with the Germans still dead against it. But at the same time, Europe as a whole remains a lot cheaper than the US, and I’d rather buy a cheap market than an expensive one.

My colleague Merryn Somerset Webb interviewed Robert Shiller – the man behind the cyclically-adjusted price/earnings ratio, one of our favourite valuation measures – and he gave his views on the most attractive European markets (as well as plenty of other interesting takes on today’s market). Watch it now (or read the transcript if you prefer) here.

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