Tags: Leadership | Europe | Guidance

New Leadership in Europe, but Not Much Guidance

By Hans Parisis
Monday, 14 Nov 2011 10:46 AM Current | Bio | Archive

Finally, Greece and Italy have new prime ministers that are both well-known as good technocrats but not as skilful politicians.

In Greece, we got the “unelected” Lucas Papademos, who was Governor of the Bank of Greece from 1994 to 2002 and Vice President of the ECB from 2002 to 2010. In Italy, Silvio Berlusconi was replaced by Mario Monti, who is a member of the Italian Senate as Senator for life. We could say that, for now at least, it seems that the eurozone has stepped back from the brink of a crisis that was threatening to spin completely out of control.

Investors should take notice that these events don’t mean in any way the eurozone’s sovereign debt crisis has now found a “magical” and realistic way out from its extremely profound structural problems that surfaced because of the sovereign debt crisis of some of its member states.

Unfortunately, the only thing that really has become crystal clear during the tumultuous last seven days is that the eurozone now faces a daunting historical choice. It changes what it “is” today, which is a “stability union” as defined in articles 121 and 126 of the Treaty on the Functioning of the European Union or the “Rome Treaty” that is effective since 1958 and was signed by France, West Germany, Italy, the Benelux (which are Belgium, the Netherlands and Luxemburg) or it redefines who its complying and therefore authorized members are.

As things are evolving, I wouldn’t be surprised to see political struggles erupting inside the eurozone as well as the European Union in the near to medium term not at least because the democratic governing process as it should be practiced (but isn’t) in the EU and eurozone has been bypassed by the so-called unelected Frankfurt Group, which is made up of eight people: Ms. Lagarde (IMF); Ms. Merkel; Sarkozy; Mario Draghi, the new president of the ECB; José Manuel Barroso, the president of the European Commission; Jean-Claude Juencker, chairman of the Eurogroup; Herman van Rompuy, the president of the European Council; and Olli Rehn, Europe's economic and monetary affairs commissioner. That group, which is literally accountable to nobody, is the entity that for the time being calls the shots in Eurozone and the EU.

Because what matters to this group is what the financial markets want and not what voters might want is one of the main reasons EU and the eurozone is now irrevocably bound for internal political clashes, disruptions that will ultimately lead to unavoidable changes. This somber scenario will now also be invigorated by the fact the EU is, unfortunately, apparently already stalling and probably heading into its next recession and the political and financial crisis that will come with it.

The Eurozone Purchasing Managers' Index (PMI) as calculated by the ECB, Eurostat and Markit has dropped to its lowest since June 2009, descending to a level consistent with GDP falling at a quarterly rate of 0.5 percent and signaling a heightened risk of a double-dip recession.

Also the European Commission itself in its “European Economic Forecast - Autumn 2011” it released last week states: “Compared to our 2011 spring forecast, we revised down our growth projections for 2012, for both the EU, euro area and the world economy, and remain cautious in our outlook for 2013. We do not expect a recession in our baseline scenario. But the probability of a more protracted period of stagnation is high. And, given the unusually high uncertainty around key policy decisions, a deep and prolonged recession complemented by continued market turmoil cannot be excluded…” No, that doesn’t bode well at all.

Yes, but that’s my personal opinion, I’m convinced we are headed for colossal challenges, changes and impacts that will not be limited to Europe but that will also have to be confronted on a global scale because of the coming “reshaping/contracting,” which means fewer core member states, of the eurozone in the short to medium term.

Long-term investors should try to be well prepared for that historical once in a generation event.

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HansParisis
Finally, Greece and Italy have new prime ministers that are both well-known as good technocrats but not as skilful politicians. In Greece, we got the unelected Lucas Papademos, who was Governor of the Bank of Greece from 1994 to 2002 and Vice President of the ECB from...
Leadership,Europe,Guidance
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2011-46-14
 

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