Tags: Saravelos | Europe | economy | bank

Deutsche Bank's Saravelos: A 'Euroglut' Could Boost the Global Economy

By    |   Tuesday, 07 October 2014 11:26 AM

A "euroglut" could throttle the euro, keep a lid on U.S. interest rates and drive global markets for years to come, according to Deutsche Bank strategist George Saravelos.

In a new client note, Saravelos describes "euroglut" as Europe's huge savings glut, MarketWatch reported.

He explained it is characterized by a lack of European domestic demand caused by the eurozone financial crisis that has resulted in a combination of high unemployment and a record current account surplus — too much savings relative to investment opportunities.

Europe's current account surplus of approximately $400 billion annually is even larger than China a decade ago, according to the Deutche Bank strategist.

"If sustained, it would be the largest surplus ever generated in the history of global financial markets. This matters," Saravelos wrote.

"Europe is the new China, and via large demand for foreign assets, it will play a dominant role in driving global asset price trends for the remainder of this decade."

He predicted thrifty Europeans, who are among the world's top savers, would make Europe the biggest capital exporter in the 21st century.

The impact, as Europeans are forced to look abroad for yield, may be unexpected by those who regard the continent as an economic basket case.

Saravelos predicts the euro will eventually drop below parity with the dollar, to 95 cents by the end of 2017.

In addition, he forecast U.S. fixed income would enjoy strong European demand, with yields at favorable low levels, which obviously would be helpful for the American economy.

Emerging markets would also likely be a beneficiary, he noted.

The Bank of England might "ring fence" the high cash savings of individuals to protect them from a future financial crisis, The Times of London reported.

Under the Bank of England's proposal, customers who place large temporary sums of up to 1 million pounds in their accounts after selling their home or inheriting money would qualify for special full deposit protection guaranteed by the government.

The proposal is designed to prevent taxpayers from having to bail out Britain's top banks and insurers in the event of another financial meltdown.

At Alliance Bernstein, European portfolio manager Michele Patri said stocks there may be entering a "bad news is good news" stage, in which growing fiscal and monetary stimulus measures from the European Central Bank to offset economic weakness will end up driving financial assets.

Under that scenario, more bad economic news would result in more stimulus, which would have the effect of boosting stocks.

© 2019 Newsmax Finance. All rights reserved.

1Like our page
A "euroglut" could throttle the euro, keep a lid on U.S. interest rates and drive global markets for years to come, according to Deutsche Bank strategist George Saravelos.
Saravelos, Europe, economy, bank
Tuesday, 07 October 2014 11:26 AM
Newsmax Media, Inc.

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

America's News Page
© Newsmax Media, Inc.
All Rights Reserved