Euro area: Wars, Greece and "whatever it takes" QEs

The long-suffering European monetary union will be jolted this month by two events likely to set off a chain of unsettling political and economic crises.

Several attempts are under way to establish a lasting cease-fire and a feasible peace process in Ukraine. That is supposed to prepare a summit meeting of leaders from Ukraine, Russia, Germany and France in Astana, the capital of Kazakhstan, on January 15.

With all their grandiloquent ideas about Eastern Partnership, Europeans have been unable to stop the bloodshed of the Ukrainian civil war. According to the U.N. data, the war has already claimed nearly 5,000 lives, with more than 10,000 people injured, millions of displaced persons, cities and villages reduced to smoldering ruins and people living without basic necessities on charity handouts.

Posturing?

I hope so, but I don't think that the ongoing killings and rocket salvos into residential areas – despite an existing cease-fire agreement – bode well for a settlement that would satisfy the "republics" and the Ukraine's government.

Luckily, there is still willingness to talk. During last Friday's conference call, foreign ministers from Russia, Germany, France and Ukraine agreed that a contact group (a forum for facilitating talks between the "republics" and the Ukrainian government) should convene today, Monday, January 5, in Berlin, Germany.

Meanwhile, sanctions against Russia, and Russia's retaliatory sanctions against the West, will remain in place. Depending on the mood, they could even be stepped up by both sides.

But how the sanctions tit for tat will play out over the next few months is not clear. Despite Germany's strenuous efforts to keep sanctions against Russia, a number of E.U. countries want them lifted as early as next March because they are damaging their stagnant and recessionary economies. Sanctions opponents think that impediments to trade are the last thing that Europe needs; they also worry about losing the Russian market to Asian and Latin American suppliers, and to Russia's own import-competing industries.

Timeo Danaos … Beware the Greek gifts

The next shock, with much more unsettling economic and political consequences, is likely to come from Greece after its parliamentary elections on January 25.

Extreme fiscal austerity policies -- perceived by Greeks as a devastating German diktat – have played into the hands of the country's rising radical political formations. According to the Palmos Analysis opinion poll of December 29, 2014, Greece's largest leftwing party Syriza (Coalition of the Radical Left) could easily lead the next government.

Massive selloffs of Greek assets indicate that markets expect such an election outcome. Markets are reacting to Syriza leader's statements about a moratorium on Greek debt payments and an end to austerity measures while maintaining the euro as a legal tender.