When I sent a commentary out last week with a message “do not despair”, one of the recipients described it as “courageous”. It was said rather in the manner of Sir Humphrey in Yes (Prime) Minister, implying I might have just done something I may regret. Perhaps that was good feedback. The FTSE is down 5% since then.

The second Greek election on June 17 is the catalyst for ongoing market turmoil. We are back in a world where the decisions of politicians and policymakers are the dominant influence on how we should invest. This makes the normal process of decision making inadequate and therefore raises the risk premium on financial assets. Where we are in the economic cycle (the “fundamentals”); how much is already in the price (valuation) and questioning what investor positioning and recent price action tells us about whether investors are either too bullish or bearish is secondary to making a judgement on whether Greece is going to leave the euro.

I continue to believe that letting Greece leave the euro would be a terrible decision. Beware of financial market practitioners making glib statements about how this would be “good”. It would not be.

The Greeks would suffer horribly with a collapse in the economy, the like of which we have not seen in the developed world since World War Two. Wealth would be destroyed as the new drachma would be worth 50-80% less than the euro. Greece needs to import energy and this would be difficult when it has a worthless currency. The political system is in the process of making the country ungovernable already. Leaving the structure of Europe would make that worse. The Generals would quite possibly takeover for the first time since 1975 to restore order.

Contagion would occur. Greece would be doing something that supposedly could not happen. If it can happen, then the possibility that it could happen elsewhere would, by definition, be higher! There would likely be a bank run in Ireland, Portugal and Spain at least. I suspect capital controls would have to be introduced. What price the euro then?

So, what can be done to stop this nonsense? Ironically, it’s actually quite simple. First, there will need to be an acceptance that another Greek debt restructuring is needed. UBS estimates that Greece has been lent €182bn by the rest of Europe. Taking a one-third haircut means a loss of €60bn, 0.5% of euro area GDP. This is much less expensive than the ancillary costs of Greece leaving the euro would be.

Second, the European Central Bank needs to reduce interest rates. The current 1% is high relative to the rest of the developed world. Some form of quantitative easing would also be welcome.

Third, some multilateral European entity needs to issue a bond that would be the first genuine “eurobond” guaranteed joint and severally by the member nations of the euro. The funds should be used to recapitalise the euro area banking system. This would be the means by which we would make progress toward fiscal union. This means no more than taking an idea that nation states are happy to embrace - the wealthier parts of the nation (e.g. Kensington and Chelsea) subsidise the poorer parts (e.g. Easterhouse) - and make it a cross-border phenomenon. It would also reduce the contagion fear that is already threatening to undermine the Spanish banking system.

It isn’t that difficult. It’s time for the grown-ups to prove that they are in charge in Europe. If they don’t, then the existential euro area problem is going to become a global problem through its impact on global corporate and consumer confidence. In other words, the cyclical backdrop will deteriorate threatening the corporate profit outlook and consequently justifying lower equity prices.

There are already signs that this may be happening; this is troubling and suggests that we need to see some actions before the Greek election.

Consumer discretionary and homebuilding stocks have been outperforming, which has been encouraging for those of us who think the US economy is on a sustainable growth path. But this week these stocks have come under pressure as fears begin to spread that the euro area crisis will reach into even domestically driven US industries.

Similarly, credit has been under pressure as spreads have moved wider. Some of this is related to ongoing concerns about bank regulation and its effect on balance sheets and consequently on the provision of liquidity to markets. JPMorgan’s trading loss is manageable financially but it may end up having difficult consequences for the industry if it emboldens a tougher regulatory environment.

Spread widening is also a cyclical problem as confirmed by the move wider in emerging market (EM) debt spreads in recent days. We see EM debt as the most expensive cyclical asset in the world but its move wider is a symptom of the growing fear that European contagion will reach deep into the global economy.

The good news is that financial sector stress is muted with few signs of spread widening in money markets. Of course, this is because the problem is at the sovereign level, not at the bank level. So the bad news is that the location of the stress today is actually more problematic for the world than a financial sector crisis.

There is weakness in commodities which reflects the cyclical threat. And sterling’s strength is a reminder that capital flight from the euro area to geographically proximate “safe havens” does not just mean Switzerland these days. London property in particular remains a money laundering trade.

So, we need action in Europe. When the grown-ups do appear, which must be the core view because the consequences of them not appearing are a geopolitical crisis, equities will benefit. Not least because they are now, across the world, as cheap relative to government bonds as they have been any time since the 1950s. Two thirds of the world’s stock markets have dividend yields that are higher than the local bond yield.

In Switzerland, the dividend yield is 2.9%, a remarkable 4.7 times the 0.6% bond yield. And here in the UK, the government can borrow money for ten years at 1.8% while the top 100 companies in the country will collectively pay you a dividend of 4.2% for a ratio of 2.3 times.

Simply put, there is a lot in the price. But we need the grown-ups to show some leadership in Europe, and to do it sooner rather than later.