2013-01-15
I am walking about in the central German city of Cologne on a drizzly January night. In talking to the Germans on the street, it becomes clear to me that they admire Chancellor Angela Merkel. She has remained firm on her demand that the eurozone rest intact and that countries with high debt-to-GDP ratios bring down those burdens as dictated by the Maastricht Treaty, which was signed by eurozone members in 1992.
Merkel is likable and free of scandal. But will this visible and powerful woman be reelected by a population increasingly impatient with the spending behavior of countries like Italy and Greece? The German people as well as the government have been opposed to offering too much help to their southern neighbors, who have opted for shorter work weeks, longer vacations, more job security and other entitlements that have left their national balance sheets in disarray. Why should the Germans, who have lived more conservatively and within their means, be obligated to pay for the excess of the others?
Well, as I have said before, I believe Germany will go to the rescue of its spendthrift neighbors. It has to. It is a global exporter, and 50% of its GDP comes from trade. If the eurozone breaks apart, the Germans will be left with the legacy deutsche mark, which in all likelihood would appreciate, hurting exports and most likely putting the German economy at risk of large-scale recession.
It is a complicated predicament for all in the eurozone. We have already seen the backlash exacted against European leaders who tried to implement austerity measures. The measures set off riots in Greece and Spain, dealt former French President Nicolas Sarkozy a defeat in the first round of the country's presidential elections last year and caused the collapse of the Dutch government. So it is clear that Merkel must walk a fine line, especially if she wants to win reelection.
The intricacies of this European debacle have made it difficult for investors and analysts to root out investment opportunities and identify risks. When human emotions and electoral politics come into play, economic analysis does not work so well. The role of the voter and governments is now as important to investing as work done on money supply and valuations.
For now, I can say that I sincerely hope electoral politics don’t undermine the hard work done by European policymakers over the past year. While they have not come up with an enduring solution, they have managed to keep the currency intact and bring bond spreads down from threatening levels. A new round of uncertainty could undo that hard work and renew fears of default and euro collapse. It is a tricky mix that politicians have to stir. But they must find a way because the alternative is unacceptable.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.60
An explosive brew
I am walking about in the central German city of Cologne on a drizzly January night. In talking to the Germans on the street, it becomes clear to me that they admire Chancellor Angela Merkel. She has remained firm on her demand that the eurozone rest intact and that countries with high debt-to-GDP ratios bring down those burdens as dictated by the Maastricht Treaty, which was signed by eurozone members in 1992.
Merkel is likable and free of scandal. But will this visible and powerful woman be reelected by a population increasingly impatient with the spending behavior of countries like Italy and Greece? The German people as well as the government have been opposed to offering too much help to their southern neighbors, who have opted for shorter work weeks, longer vacations, more job security and other entitlements that have left their national balance sheets in disarray. Why should the Germans, who have lived more conservatively and within their means, be obligated to pay for the excess of the others?
Well, as I have said before, I believe Germany will go to the rescue of its spendthrift neighbors. It has to. It is a global exporter, and 50% of its GDP comes from trade. If the eurozone breaks apart, the Germans will be left with the legacy deutsche mark, which in all likelihood would appreciate, hurting exports and most likely putting the German economy at risk of large-scale recession.
It is a complicated predicament for all in the eurozone. We have already seen the backlash exacted against European leaders who tried to implement austerity measures. The measures set off riots in Greece and Spain, dealt former French President Nicolas Sarkozy a defeat in the first round of the country's presidential elections last year and caused the collapse of the Dutch government. So it is clear that Merkel must walk a fine line, especially if she wants to win reelection.
The intricacies of this European debacle have made it difficult for investors and analysts to root out investment opportunities and identify risks. When human emotions and electoral politics come into play, economic analysis does not work so well. The role of the voter and governments is now as important to investing as work done on money supply and valuations.
For now, I can say that I sincerely hope electoral politics don’t undermine the hard work done by European policymakers over the past year. While they have not come up with an enduring solution, they have managed to keep the currency intact and bring bond spreads down from threatening levels. A new round of uncertainty could undo that hard work and renew fears of default and euro collapse. It is a tricky mix that politicians have to stir. But they must find a way because the alternative is unacceptable.
No forecasts can be guaranteed.
The views expressed are those of James Swanson and are subject to change at any time. These views are for informational purposes only and should not be relied upon as a recommendation or solicitation or as investment advice from the Advisor.
24070.60
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment
We look forward to hearing from you about James' commentary and perspective, but please read our commenting guidelines first. James and MFS are hopeful that your feedback will provide insight for future blog entries. Questions or comments about your MFS investments or customer-service issues? Please contact MFS directly.