For the last few weeks, the world’s financial markets have been witness to a true Greek drama. Like the plays written by Sophocles and Euripides, we have seen how the “hero”, former Prime Minister Papandreou, seeks to overcome his destiny and that of his country. However, he finally succumbs to his fate, brought upon him by the gods that dwell on Mount Olympus, or in this case in Frankfurt at the headquarters of the European Central Bank. The drama seems to end (or is it just the beginning?) with a new leadership, chosen for its ability to contain, at least momentarily, the wrath of the gods.

Markets have learned to deal with volatility since their inception as long as the uncertainty stemmed from known sources: economic growth disappointments or companies not meeting their earnings expectations. But this time it seems different as the most important cause of unpredictability comes from political leaders and their inability to make decisions.

In the case of Greece, which has endured hundreds of years of Byzantine politics, the markets have been driven crazy waiting for the decisions needed to avoid, or at least postpone, financial Armageddon. At one point European authorities seemed to sigh in relief after appearing to have settled on a massive bailout program for Greece that would reduce the imminent risk of Europe’s banking system collapsing. The arrangement called for writing off 50% of Greece’s debt. However, all this was upset unexpectedly when the government called for a public referendum on the plan, which would extend the period of uncertainty for months. Markets reacted immediately with investors taking every step to find the safest asset available. After all, it is very difficult for investors to manage this type of risk. It’s all Greek to them.

Fast forward a couple of weeks: our heroic Prime Minister is out of a job and the referendum is called off. Everything seems to be back to normal. However, in a dramatic change in events, it is now Italy that takes the center stage. And again, political events are at the source of market anxiety. Former Prime Minister Berlusconi was more a part of the problem than the solution and a change in leadership was necessary to refocus the debate on the economy. The new Prime Minister, Mario Monti, is well respected by multilateral agencies and banks although he does not seem to be welcomed by Italian politicians, which may not be a bad thing. But investors are again victims of the panic that originates from politics. This time, it’s all Italian (or Latin perhaps) to them.

If anything, however, the recent changes in leadership have struck a positive note. To the extent that investors are able to calm down as some political uncertainties disappear, they can now focus on economic forecasts. Unfortunately, there is not much good news to be found. Some analysts calculate that a far larger bailout is needed for the Greek economy to recover and start growing again. Italy, for its part, still faces sovereign debt that exceeds 120% of its GDP and rising as it has to finance itself with Euro denominated 10-year bonds issued at more than 7%. By comparison, issuing debt is much cheaper for Chile which issued dollar denominated government debt at 3.3% for the same term last September.

Despite this gloomy economic scenario, there is too much at stake for European leaders to let Rome fall. They will do anything possible to keep Europe united and to keep the Euro alive. It will not be an easy road, but at least it is a familiar one for investors. Notwithstanding its difficulties, it will surely be easier than learning Greek or Latin.

Axel Christensen is Managing Director for South America ex Brazil at Blackrock

For the last few weeks, the world’s financial markets have been witness to a true Greek drama. Like the plays written by Sophocles and Euripides, we have seen how the “hero”, former Prime Minister Papandreou, seeks to overcome his destiny and that of his country. However, he finally succumbs to his fate, brought upon him by the gods that dwell on Mount Olympus, or in this case in Frankfurt at the headquarters of the European Central Bank. The drama seems to end (or is it just the beginning?) with a new leadership, chosen for its ability to contain, at least momentarily, the wrath of the gods.

Markets have learned to deal with volatility since their inception as long as the uncertainty stemmed from known sources: economic growth disappointments or companies not meeting their earnings expectations. But this time it seems different as the most important cause of unpredictability comes from political leaders and their inability to make decisions.

In the case of Greece, which has endured hundreds of years of Byzantine politics, the markets have been driven crazy waiting for the decisions needed to avoid, or at least postpone, financial Armageddon. At one point European authorities seemed to sigh in relief after appearing to have settled on a massive bailout program for Greece that would reduce the imminent risk of Europe’s banking system collapsing. The arrangement called for writing off 50% of Greece’s debt. However, all this was upset unexpectedly when the government called for a public referendum on the plan, which would extend the period of uncertainty for months. Markets reacted immediately with investors taking every step to find the safest asset available. After all, it is very difficult for investors to manage this type of risk. It’s all Greek to them.

Fast forward a couple of weeks: our heroic Prime Minister is out of a job and the referendum is called off. Everything seems to be back to normal. However, in a dramatic change in events, it is now Italy that takes the center stage. And again, political events are at the source of market anxiety. Former Prime Minister Berlusconi was more a part of the problem than the solution and a change in leadership was necessary to refocus the debate on the economy. The new Prime Minister, Mario Monti, is well respected by multilateral agencies and banks although he does not seem to be welcomed by Italian politicians, which may not be a bad thing. But investors are again victims of the panic that originates from politics. This time, it’s all Italian (or Latin perhaps) to them.

If anything, however, the recent changes in leadership have struck a positive note. To the extent that investors are able to calm down as some political uncertainties disappear, they can now focus on economic forecasts. Unfortunately, there is not much good news to be found. Some analysts calculate that a far larger bailout is needed for the Greek economy to recover and start growing again. Italy, for its part, still faces sovereign debt that exceeds 120% of its GDP and rising as it has to finance itself with Euro denominated 10-year bonds issued at more than 7%. By comparison, issuing debt is much cheaper for Chile which issued dollar denominated government debt at 3.3% for the same term last September.

Despite this gloomy economic scenario, there is too much at stake for European leaders to let Rome fall. They will do anything possible to keep Europe united and to keep the Euro alive. It will not be an easy road, but at least it is a familiar one for investors. Notwithstanding its difficulties, it will surely be easier than learning Greek or Latin.

Axel Christensen is Managing Director for South America ex Brazil at Blackrock

For the last few weeks, the world’s financial markets have been witness to a true Greek drama. Like the plays written by Sophocles and Euripides, we have seen how the “hero”, former Prime Minister Papandreou, seeks to overcome his destiny and that of his country. However, he finally succumbs to his fate, brought upon him by the gods that dwell on Mount Olympus, or in this case in Frankfurt at the headquarters of the European Central Bank. The drama seems to end (or is it just the beginning?) with a new leadership, chosen for its ability to contain, at least momentarily, the wrath of the gods.

Markets have learned to deal with volatility since their inception as long as the uncertainty stemmed from known sources: economic growth disappointments or companies not meeting their earnings expectations. But this time it seems different as the most important cause of unpredictability comes from political leaders and their inability to make decisions.

In the case of Greece, which has endured hundreds of years of Byzantine politics, the markets have been driven crazy waiting for the decisions needed to avoid, or at least postpone, financial Armageddon. At one point European authorities seemed to sigh in relief after appearing to have settled on a massive bailout program for Greece that would reduce the imminent risk of Europe’s banking system collapsing. The arrangement called for writing off 50% of Greece’s debt. However, all this was upset unexpectedly when the government called for a public referendum on the plan, which would extend the period of uncertainty for months. Markets reacted immediately with investors taking every step to find the safest asset available. After all, it is very difficult for investors to manage this type of risk. It’s all Greek to them.

Fast forward a couple of weeks: our heroic Prime Minister is out of a job and the referendum is called off. Everything seems to be back to normal. However, in a dramatic change in events, it is now Italy that takes the center stage. And again, political events are at the source of market anxiety. Former Prime Minister Berlusconi was more a part of the problem than the solution and a change in leadership was necessary to refocus the debate on the economy. The new Prime Minister, Mario Monti, is well respected by multilateral agencies and banks although he does not seem to be welcomed by Italian politicians, which may not be a bad thing. But investors are again victims of the panic that originates from politics. This time, it’s all Italian (or Latin perhaps) to them.

If anything, however, the recent changes in leadership have struck a positive note. To the extent that investors are able to calm down as some political uncertainties disappear, they can now focus on economic forecasts. Unfortunately, there is not much good news to be found. Some analysts calculate that a far larger bailout is needed for the Greek economy to recover and start growing again. Italy, for its part, still faces sovereign debt that exceeds 120% of its GDP and rising as it has to finance itself with Euro denominated 10-year bonds issued at more than 7%. By comparison, issuing debt is much cheaper for Chile which issued dollar denominated government debt at 3.3% for the same term last September.

Despite this gloomy economic scenario, there is too much at stake for European leaders to let Rome fall. They will do anything possible to keep Europe united and to keep the Euro alive. It will not be an easy road, but at least it is a familiar one for investors. Notwithstanding its difficulties, it will surely be easier than learning Greek or Latin.

Axel Christensen is Managing Director for South America ex Brazil at Blackrock