Americans Believe That Europe Is Downplaying The Debt Crisis
A number of investors in recent weeks have begun to believe that the markets have managed to overcome the powerful effect that the debt crisis in the euro area would have had on them, writes the Financial Times.
With the perception of investors has improved lately with regard to countries with problems located in the so-called periphery of the Eurozone, and the confidence that markets are beginning to return to escalate ever higher.
However, given that there is enough uncertainty about the global economic outlook and fears that problems could arise in the balance sheets of banks and official statistics, opinions are divided.
Moreover, differences have emerged between U.S., more skeptical, and Europeans, much more optimistic about the way in which problems PIGS countries (Portugal, Ireland, Greece and Spain) may alter the other euro area economies.
Kenneth Rogoff, a professor at Harvard, he worked as chief economist for the International Monetary Fund (IMF), is one of the pessimistic and, in general, summarizes the large majority of American investors. He is convinced that the Europeans are in a state of denial regarding the extent of the crisis. “The question is how far will it go (the debt crisis – editor’s note)? What will happen to Ireland and Spain? If (these countries – editor’s note.) Will be on the brink, the Germans will come to do things you would not even dare to dream. I find it remarkable how the Europeans were convinced that everything is under control markets, “said Rogoff.
Americans believe that the ECB is mistaken
David Leduc, director of investments in U.S. investment fund Standish, agrees. “European Central Bank’s strategy to withdraw from additional economic stimulus policy seems to be risky, given the challenges facing the periphery of Europe and implemented austerity measures,” said Leduc.
In contrast, some European economists and investors are only seeing the good news. Also, the Old Continent strategy strives to prevent markets from bonds issued by Eurozone governments to be on the verge of making implosion, as happened on May 7 this year, three days before EU leaders to launch rescue fund worth 750 billion.
Don Smith, economist at London ICAP investment in the Fund, explained: “I believe that we have what could be the worst … We see improvements in the markets and there is even evidence that the austerity measures are reliable and work in Greece.
Gary Jenkins, a representative of Evolution Securities investment fund, confirmed: “We have passed the worst if we use on May 7 as a reference point. Then, the market was on the verge of collapse. The system went into agony”.
Fourth quarter started on the right foot
Indeed, markets have passed since the end of September signals that they are responsible. Bond yields situated on the outskirts of the euro zone countries were lowered and the risk premium investors require preferring one of these titles at the expense of German equivalents decreased. Moreover, the cost of government credit insurance, financial instruments covered by credit default swaps, declined.
Eons indicator, which is a weighted average interest on all investments made in euros on a day the most active banks, gradually approaching the 1% level which lies in fact in the present and the Bank’s benchmark interest rate ECB.
This suggests that the market begins to stabilize. What will happen in future but that will be outcome of this crisis, it is difficult to measure even now, two years after the economic and financial turmoil have reached the Old Continent.11