Will this greater-EU economy of over 500 million people and of an economic size similar to the United States survive? Will the euro stabilize and improve? We think the answer in both cases is yes.
Motivation is an important element in understanding the EU and the euro. Simply put: for a thousand years, the Germans, the French, and their ancestors spent the better part of their energy and resources killing each other. Their history is a one of inflations and political reactions that changed governments. The most recent dramatic European example was the Weimar Republic hyperinflation that was followed by the rise of Nazism. It took the ashes of World War II to change the European view and fundamentally alter the course of history. France and Germany had a “rapprochement’ and decided to set aside war, for good.
Investors must not confuse a currency adjustment with a stock market. The Germans got the benefit of the euro devaluation. The Greeks have to pay a price for their budget misbehavior.
Will the outcome be a good one for all of Europe? Certainly for the northern countries, whose business and personal income-tax rates are lower than in the US and whose productivity and profitability are growing sharply.
Will Greece and other southern European countries rein in their budgets and correct their imbalances? In most cases they are already starting to do so. If they succeed, the euro will be a battle-tested currency and resume its ascendancy as a world reserve. European leaders know why they must accomplish this task; they know that the old ways of inflations and war are unacceptable.
For more: EU Economy To Survive, Outperform US | The Big Picture
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