Europe’s Economic Fast Fix

Speaking of an unhappy bunch…

We’re beginning to feel sorry for Europe’s economy. Faced with intractable economic problems, they also have to contend with the counterparts around the world telling them to ‘hurry up and fix’ their problems.

It’s like Europe’s economy is a chair with a broken leg. People want it ‘fixed’ so they can sit down.

RBA Governor Glenn Stevens’ legs are obviously getting tired. ‘We’re fast coming to a point where parties who have to come up with a solution have to hurry up and do it,’ he said today.

Today’s SMH quotes Westpac’s Gail Kelly as saying: ‘What’s happening in Europe is a major concern and not improving. The various authorities in Europe actually have the capacity to deal with these issues – I certainly wish they’d get on with it and do it.’

Being bankers, we assume both Stevens and Kelly think a little money printing will do the trick. Printing money works for bankers, but it’s not too good for society as a whole. The Germans know this.

But the Germans are wrong too. They are trying to maintain a structure that is fatally flawed. Unless they agree to a fiscal union – where one country’s word is everyone else’s bond – the Eurozone is doomed.

Perhaps that is why German bond yields are starting to edge up? Maybe that’s the market guessing that Germany will sacrifice its good credit for the sake of the Eurozone.

Whatever it is, the Europe’s economic situation in is far more nuanced than most outside observers think. And where advice from Australia’s bankers is concerned Europe should tell them to look after their own backyard, because the China party is coming to an end.

Greg Canavan,
for Markets and Money

Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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