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The more hopeful, more realistic view of Europe 2010-May-18 at 09:35 PST

Posted by Scott Arbeit in Blog.
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In my previous post, I talked about the bleak view of Europe right now.  What would a set of more hopeful, more realistic perspectives look like?

Here are seven that, taken together, work for me.

  1. The idea that the EuroZone would never run into a major political crisis was naïve to begin with, and that crisis has now arrived.  It’s been a while since we really needed the grown-ups in European politics to step up, and they’re all a little slow out of the gate and a bit rusty at it, but now that this has come, we’ll see the important leaders taking responsibility for steering Europe through this.  I think they’re getting the hang of it, now that the $1T bailout package has been announced.
  2. No central European decision-maker would seriously consider dismantling the Euro.  It’s done too much to smooth relations between countries who have centuries of history of war.
  3. Some of the governments that supported the bailout will lose their next national elections, because, again, not all voters in Europe are at Green.  The results of these elections will be developmentally appropriate for those countries.  In fact, it’ll serve as an interesting Integral litmus test of some rough kind to show where populations are operating from during this crisis.  They might come from a later stage of development when things are good, but where are they when things seem bad?
  4. Even those new governments who won elections by harnessing voter anger won’t seriously argue either to end the Euro, or to unilaterally withdraw from it.  Some from those parties might talk about ending the Euro to placate their supporters, and might even stir up some populist energy, but when it comes down to it, none of them really want to invest their political lives in making that happen, and any passion around that will subside, probably by 2012.
  5. It’s going to take years to get the countries with high deficits back on a path to growth.  This is a very difficult set of circumstances for any government, or any Central Bank, to manage.  If they soft-land this, the way Obama soft-landed the crash he inherited, and you start to see a turnaround in growth in three years, I’d call that a masterful job of managing a potentially fatal blow against the Euro, wouldn’t you?
  6. The next time Europe appoints a President, they’ll realize the mistake they made choosing someone with no real international power, and put a big name in that spot.  Seriously, how many times have you heard the name Herman Van Rompuy during this thing?  If you need more than one hand to count that up, you’re reading news stories that I’m missing.  Imagine how this would be different if Tony Blair were in that position, and you’ll see how they’ll want someone who can provide that level of international presence and political cover for them in a crisis.
  7. The Euro will survive… the halo will have come off of it a bit, but having gotten through this major test, it’s future as THE single currency of all of Europe – as an important step to take as a new world economy forms, centered in Asia – will be assured.

And hopefully history will note that this set of leaders took action at a crucial time to ensure that the Euro remained on track.

That’s the hopeful view, and the realistic view, of what Europe is about to go through for the next few years.  I’m fascinated to watch it unfold.

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Comments»

1. Bryan - 2010-May-18 at 11:42 PST

I still maintain that the “real” crisis in the U.S. and European markets has yet to unfold, marked largely by the continued efforts to pin recent volatility as just the bumpy road to recovery from 2007. With most investors focused on analyzing past declines (and magically using this data to predict a frequently non-existent future), it seems only natural that the writing still lingering on the wall go all but ignored.

As for the Euro, just about the time CNBC and NPR made their calls for a flight to safety in the U.S. Dollar, I’ve been looking for a temporarily top, also matched with a short terms level-off in the Euro. When the situation in Europe appears “under control” by the likes of IMF heads, etc., I’ll be looking for a sharp decline again in the Euro, paired with another run up in the Dollar. This will no doubt coincide with convenient “new” concerns about the compelxity of the situation in Europe, and likely emerge alongside new data suggesting a rockier road for the U.S. recovery than intially expected.

Bigger picture, I definitely agree that much of what Obama currently faces has been inherited, although I’d also argue the same for many other political and economic leaders as well. Regardless of actions that may or may not be legal, morally developed, or responsible, it has become increasingly apparent that most of these leaders have far less influence on market prices than we like to think. Sure, market declines (and advances) can be teased apart into endless cause-effect action sequences, but rarely do I hear people explore the more elusive drive behind those actions.

Bottom line, we all know that markets are irrational, most think we’re in a recovery, and very few recognize the incompatibility of applying economic models to finance. (not that we don’t have serious problems in both areas ;-) Whether the Euro situation ends up playing a large role in the next U.S. decline or not is irrelevant in my mind. While global economies are surely interconnected, the arbitrary nature of the media connecting the long-standing illness in Greece, Portugal, and Ireland to U.S. market volatility, only underscores my belief that such explanations are no longer sustainable, let alone useful when it comes to safely measuring risk, value, and most importantly, protecting one’s assets. Dow 6k by the end of 2010?…In my opinion, yes. Nobdy likes to hear it, but I think we’re far more poised for a deflationary depression than current media indicators would suggest.


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