In the latest chapter of the European debt crisis, an unlikely nation came into focus today. The Dutch Cabinet resigned after austerity talks failed.
This was a very unlikely event since most of the focus of the Eurozone crisis has focused on Greece and other southern European countries like Italy, Spain and Portugal. This is also a political blow since the northern nations, including the Netherlands, were the ones pressuring the south to implement austerity.
This could have the effect of the Netherlands losing their AAA credit rating status and their interest rates rising. To see signs of trouble for a strong northern country like this could have a huge psychological effect on the markets.
Right now, it’s all about confidence or the lack thereof. Watch for even US stocks to decline on this news. Also, look for more bad news to be in the spotlight this week.
The bad news in Europe has the potential to cripple the rally that has been going on good earnings in the US.
This just adds to the political instability in the region. France and Spain are going through elections. Now the Dutch will have new elections to bring in a new cabinet. Any political divisions might cause the financial markets to lose confidence in the ability of the Eurozone to resolve this crisis any time soon.
Stocks to Buy for a Eurozone Crisis
Since this is an investing website, let me tell you the implications for stock investing. The principles stay the same no matter what the global macroeconomic climate is. The best stocks to buy will always be those that have a strong underlying business. All the economic conditions will do is cause the good ones to be undervalued.
That means you will need to know how to invest in stocks by figuring out if the company’s fundamentals are strong. You won’t be able to tell just by the stock price or the P/E ratios. You will have to do more of an in depth analysis, like the types we do here on Finance World.
What to Watch for Next
The problems in the Netherlands may have the effect of compounding the problems in Italy and Spain, the two of the larger economies that are in crisis. Closely watch their bond prices and interest rates to get a feel for how the market will react to the news in the Netherlands.