Less than 12 hours after we learned the outcome of the presidential election, Mario Draghi uttered negative comments about the economic health of the Eurozone. Most people completely missed the real significance of what happened, because they focused on what he said, rather than on the timing of the remarks.
Let's recap. For months, Tim Geithner has been on the phone with European political & financial leaders doing everything within his power to keep the European debt crisis stabilized until after the U.S. presidential election. Why? If the crisis in Europe flared up, it would have undoubtedly had a negative impact on the U.S. stock market which would have affected Obama's reelection chances. Now that the election is over, the Obama administration has no incentive to keep pressuring European leaders. Recall Obama's remark to Russian President Dmitry Medvedev: "This is my last election. I'll have more flexibility after this election." Translated = our approach to dealing with international issues before the election will be different than dealing with them after the election.
Now that the election is over, I believe we'll see a lot more negative media headlines about the European debt crisis. I don't think it's a coincidence that Draghi waited to make negative comments until the day after the election. At the ECB press conference today we expect Draghi to use language in an effort to maintain stability; but that market participants will mostly be disappointed.
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