Market Overview

Financial Crisis Claims Another European Leader

The financial crisis facing the European Union claimed another member country's leader when Romanian Prime Minister Emil Boc announced on Monday his decision to step down. Prime Minister Boc said that he was resigning in order to reduce political and social tension that had been growing after weeks of protests against austerity measures implemented by his government and widespread corruption.

The Romanian prime minister was the latest European Union leader to step down from power largely because of the financial crisis that has put the future of the eurozone in question. Italy's Silvio Berlusconi and Greek prime minister George Papandreou both resigned after widespread protests against their countries' austerity measures made it more difficult for them to lead their countries out of the financial crisis that has threatened the eurozone's future.

The Romanian government has introduced a number of unpopular austerity measures including drastic cuts to public sector salaries, as well as raising the country's already high sales tax to 24%. The austerity measures are particularly painful in Romania because it is one of the poorest members of the European Union. The Romanian government said that the spending cuts and tax increases were needed in order to receive the next installment of its 20 billion euro bailout loan from the International Monetary Fund (IMF). However, that mattered little to the many Romanians who have been protesting for weeks because they have seen their standard of living drop significantly due to the austerity measures.

Although Romania still uses the Romanian leu as its national currency, as opposed to the eurozone's euro, the resignation of another European Union leader over austerity measures that were introduced in order to receive financial aid could be another blow the eurozone's future. As more and more citizens of European Union countries show their displeasure at the way that their governments are dealing with the financial crisis, those governments might be forced to choose between the needs of the European Union and their own citizens.

The future leadership of Romania is still in question because no political party won an outright majority in the last election. Romanian President Traian Basescu will hold talks with leaders of the country's various political parties in order to pick a prime minister to serve Romania until the next general election.

ACTION ITEMS:

Bullish:
Traders who believe that the resignation of the Romanian prime minister is of little significance may consider the following trades:

  • For those who think that the euro is currently undervalued, the resignation could be a buying opportunity for an ETF like the CurrencyShares Euro Trust (NYSE: FXE), which will climb higher if the euro moves higher.
  • European banking stocks like Banco Santander (NYSE: STD), Deutsche Bank (NYSE: DB) and Credit Suisse Group (NYSE: CS) could also have significant upside if the Romanian government's crisis proves to be just another painful step in the European Union's efforts to prevent a global financial meltdown

Bearish:
Traders who believe that having another European Union leader resign over unpopular austerity measures is a bad sign for the future of the eurozone and the European Union might want to consider an alternate position:

  • The ProShares UltraShort Euro (NYSE: EUO) and the Market Vectors Double Short Euro (NYSE: DRR) ETFs could move higher if the European Union's ability to stick with spending cuts and tax increases is called into question by the resignation of another leader that supported them.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Emil Boc European Union Eurozone George Papandreou Greece IMF International Monetary Fund italy Romania Silvio Berlusconi Traian BasescuBonds Long Ideas News Sector ETFs Short Ideas Specialty ETFs Emerging Market ETFs Financing Politics Currency ETFs Forex Events Global Econ #s Economics Markets Trading Ideas ETFs General Best of Benzinga

 

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