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Storytelling In The News: #90

Markets depressed by story of Spanish election upset

March 16, 2004

The election of an anti-war government in Spain further unnerved the stock market Monday, propelling the Dow Jones industrial average more than 130 points lower on fears that terrorists, emboldened by the events in Spain, would strike again. The Dow Jones Industrial Index sank to its lowest level since December.

What does the Spanish election have to do with the US economy?

In principle, the election in Spain has nothing to do with the fundamentals of the US economy, but the story of the outcome stock markets spiraling lower. "The Spain elections certainly have some ramifications on the war on terror, and the political implications aren't great for the U.S.," said Jay Suskind, head trader at Ryan Beck & Co. (quoted in the Washington Post) "Put that together with the lousy week we had last week, and there's not much confidence in buying." The past week's selloff brought an end to the market's year-long rally, which had started to taper off in mid-February.

Some investors were looking to the perennially optimistic storyteller, Alan Greenspan, to lift the mood. and so held back on buying prior to today's (Tuesday March 16) Federal Reserve meeting, which they hoped would give a clearer picture on interest rates ."If the Fed comes out with a really optimistic statement, that could help things," Suskind said. "But even that might not be enough. Long-term, things look pretty good, and we should get some good pre-announcement on earnings. But short-term, there's a lot of concern out there."

But looming over the day was the story that the ouster of the center-right party in Spain, only days after a terrorist bombing that may be linked to Al Qaeda, is the first electoral rebuke of one of President Bush's most steadfast allies in the Iraq war.

The White House's stories and their counter-stories

According to the New York Times, the Bush administration must now fight against the widely believed story, whether accurate or not, that acts of terror against America's allies can sway nations into rethinking the wisdom of standing too closely with Mr. Bush. Time after time, President Bush has responded to critics who say he has alienated America's closest allies by telling the story of Mr. Aznar who is a courageous example of a leader who ignored poll numbers — upward of 90 percent of Spaniards opposed the war — and who acted in Spain's best interests.

Only last week several senior members of the administration had told the future story that his conservatives would emerge victorious. In fact, months ago a senior adviser to Mr. Bush told the future story that should a terrorist attack occur in Europe, it would probably drive the Europeans closer to the United States and its approach to the campaign against terror, not away from it.

So on Sunday evening administration officials scrambled to hide their disappointment that events were not in accordance with the future stories they had told.. It was lost on no one in Mr. Bush's inner circle that Mr. Zapatero rode to victory by denouncing Mr. Bush's approach to the world, and that he pledged to bring home Spain's 1,300 troops in Iraq in July. "We don't know how big a factor the Madrid bombing was in the outcome," one senior American official said. "We don't know that what happened in Spain marks a broader trend. But I wouldn't be telling the truth if I said this is the kind of outcome we might have wished for."

The Minneapolis Star story

The Wall Street Journal called the election results in Spain "a crushing blow" for President Bush. Why? The Minneapolis Star explains succinctly, with a story of its own:

President Bush has always sought to equate the war on terror with the war in Iraq, as if one equaled the other. Indeed, that's how he sold the invasion of Iraq: Iraq had weapons of mass destruction and sought more; Iraq had ties to Al-Qaida and could supply it with those weapons. Take down Iraq, destroy the weapons and the terrorist connections, and you make the world safer from the threat of terrorist attacks.

The simultaneous train attacks in Madrid last week blew Bush's argument out of the water. The attacks may also have knocked the fight against terror off its tracks, to the world's great detriment.

Bush's equation never really made sense. The need for an aggressive war on terror, carried out by a strong and unified international coalition, was urgent before Sept. 11 and grew imperative afterward.

The invasion of Iraq was an invasion of choice dressed up in the rhetoric of imperative; a year later, there have been no WMD discoveries, nor has evidence surfaced of ties between Iraq and Al-Qaida. What the Iraq war did do was divide the antiterror coalition....

The people of Spain, along with the French, the Russians, the Germans and others, understood well the difference between fighting terror and fighting Saddam Hussein..

Al-Qaida or someone operating in its name has now driven a large wedge into that seam of dissension.

Bottom line

Once again, the fundamentals of the US economy remain unchanged. The only thing that is different, the thing that is sufficient to send the stock market into a tailspin is - a story, which sets off more stories, and suddenly the economy and its prospects look problematic.

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