Monday, June 18, 2012 8:18:02 AM

What on Earth Is Going on in Europe?

It would be remiss of any European Editor not to mention the recent events within the Eurozone - even if no one really can make any sense of what is going on - so I will do my best to run through the highlights (and try not to mention the continent-wide football tournament currently taking place).

In the last 14 days we have seen Spain's banks bailed out; Dutch banks downgraded; France being pushed to BBB+ by one - albeit minor - ratings agency; and some of the Nordic countries reforming their pension legislation to ensure domestic companies don't bite the dust if - or before - the euro does.

Yesterday, the Greeks voted in yet another general election and although there has been no outright winner, it seems the party most aligned to accepting a financial bailout will form a coalition government with other sympathisers. Phew - or at least phew for now.

So what does this mean for investors? Well, honestly, it's hard to know. We have been on this yo-yo between relief and despair for so long that announcements and decisions that calmed markets for weeks last year barely placate markets for hours now.

The Greek Rally, or 'Grally' as it was being termed on Twitter, was short-lived this morning in Asian and European markets even though the 'Grexit' seemed to be put off, (at least for a while).

As relief quickly wore off, Spain's 10 year bond yields, which had been perilously close to yielding 7% - after reaching which point Eurozone countries have gone cap-in-hand for a bailout - slipped past that point this morning and foreign exchange markets were seemingly going haywire in early morning trading.

If I were an institutional investor - and it's on days like this I'm glad I'm not - I'd be trying to take the long-term view, but we have gone past 'avoiding the white noise' stage to utter confusion in Europe.

Uncertainty has become the only certainty for investors in this market, so risk management has become (if it ever wasn't) fundamental to surviving these choppy seas.

It is imperative to look after the downside and any upside in this market is a bonus - and one that should not be expected. Just like England getting through to the quarter finals in the Euro2012 football championship.

(I nearly managed it!)

Elizabeth Pfeuti

European Editor