A number of different but related things are happening at once across Europe this week and on through the month.
The big question this raises from an investment point of view is whether all the cash that has flooded into European equities funds so far this year will look more like smart money or an unwise gamble by July.
With US equities looking expensive by the turn of the year and UK equities threatened by the prospect of political instability caused by a messy election (which did not materialise in the end) it made a lot of sense to shift money in to European equities.
That was before the European Central Bank’s QE programme announced in January was even factored in, which was the biggest driver of the allocation shift.
Now though, investors who have recently jumped on the European equities bandwagon will not be quite as comfortable with their decision as they were a month or so ago.
The Greece issue is coming to a crunch point with over €1.5bn in payments to the IMF due over four weeks, beginning 5 June.
The latest indications are that a deal has been reached among creditors on a new offer to Greece allowing them to meet these payments, however there are no guarantees that the Syriza government will accept, given they were explicitly elected to rip up austerity.
There is a fragile consensus that even an acrimonious Greek exit from the eurozone would be containable and only Greece itself would be badly hit. The reality is that this is just optimistic guess work because there is no real precedent for such an event to draw from.
On the other side of the coin, the outcome of this latest phase in the travails of Greece has serious implications for Spain and Italy in another way. Any sign that creditors are being generous in dealing with Greece will surely embolden far left parties with similar ideas to Syriza who wish to tear up austerity measures in their nations.
