Consensus on Europe is never going to be found easily, not for a region so clearly polarised in terms the divergence of monetary might, but that the Mario Draghi-led ECB has finally flexed its muscles with some decisive action has impressed many.
“Ever since the eurozone debt crisis took off in 2009, the ECB has been taking a back seat, responding to events rather than leading them,” remarks Skandia’s head of asset allocation, Rupert Watson.
Intervention at the right time
“With the crisis spreading and deepening, the ECB has at last found a good reason to intervene more forcefully in a way that it believes is consistent with the Treaties that bind it.”
So impressed is Watson of the ECBs newfound confidence that he believes we could be seeing the “beginning of the end” of the debt crisis.
“While growth in the problem countries is likely to remain flat or negative for the next few years, we think that the ability of the problem in these countries to undermine the global economy or global financial markets is likely to be much diminished,” he adds.
“Beginning of the end” is a phrase we’ve all heard before and raises the temperature of anyone who lost big bucks in economic crises of old. The real progress will, of course, only be made with genuine political accord.
Receding fears
For Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, ECB intervention could ultimately trigger a pick-up in business confidence in core countries as fears of a break up recede.
“Banking union of some form could help spread the pain of periphery economic and asset price weakness across the euro area but my concern is that we’ll continue to see chronic economic divergences,” he says.
“In the end this is always going to come down to politics. Will lender countries keep lending? Will borrower countries stick to austerity? Does all of this engender full political union or deepen divisions? I expect Europe to muddle along but its economy won’t fire on all cylinders until these issues are resolved.”
