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With over 25 years of experience in the asset management industry, Giordano Lombardos insights and expertise make him a sought-after commentator among Europes financial press.
Last week Ireland ratified the Fiscal Compact. Yet, while the Irish referendum is only one of the electoral events of this hot spring, it is not the most important one. The Greek elections on June 17 will be crucial for confirming the actual structure of the eurozone. In any case, even if the results of the referendum were not overwhelmingly positive, they provide a good indication of the countrys willingness to accept eurozone rules. The result is in line with what I see in most of the European countries, a declaration of “more Europe,” as highlighted by recent elections in France and in Germany.
I am often asked why – two years into the euro crisis – weve seen no solution. The euro crisis is not a pure debt crisis linked to deleveraging issues, as in the U.S. and the UK. It is much more complex and touches many different perspectives:
- Current account imbalances – Germany and the Netherlands showing huge surpluses, while other countries have large deficits
- Differences in wages and productivity
- Different structural issues (Ireland and Spain struggling with property bubbles, Greece and Portugal with unsustainable fiscal conditions, Italy without any particular structural problem, but with a chronic low-growth economy)
All of these problems need to be addressed collectively, with a coordination of will and interpretation among countries. Germany has a narrow interpretation of resolving the crisis through austerity, while other countries have tipped the balance toward growth. These two world views are not incompatible. In this tug of war, Germany wants a more disciplined approach, pressing the other countries to implement structural reforms that they are unlikely to do alone; on the other hand, growth is necessary everywhere, even from a social point of view.
At the end of the crisis, we are likely to see a more united Europe, and not only from a monetary perspective. Germany is likely to accept a more pro-growth stance and peripheral countries will maintain fiscal discipline. However, Greece is a separate case. Elections could drive Greece out of the Monetary Union, and in this case, the role of the ECB will be crucial in limiting contagion.
A more complete summary of my thoughts on the crisis, its outcome and potential implications for investors can be found in our recent Market Viewpoint, The Euro: Make or Break. I look forward to sharing with you additional insights on the crisis and other matters of significance in the eurozone in future posts.