05/07/2011
By Ilonka Oudenampsen
The crisis in the Eurozone might be resolved by dividing the Euro roughly across a north/south divide, believes SVM Asset Management’s managing director Colin McLean.
McLean said an exit by Greece would not solve the problem, while maintaining the Eurozone might be too much for the voters of Northern Europe. By splitting the Euro, Germany would cease to have an undervalued currency, while the Mediterranean countries would get a boost from devaluation.
“This would address the underlying problem, and stock markets might respond surprisingly well to this. What investors need is clarity, not another European fudge,” he added.
“Greece’s problems go well beyond debt. The budget deficit will not be corrected until the economy is comprehensively reformed. Greece is one of Europe’s most regulated and least entrepreneurial economies. It has a generous welfare system, a rigid labour market and a low tax base. The underlying reason for the debt must be addressed. Without that there will be few takers for any of the assets that Greece needs to sell to balance its books.”
McLean noted that, despite being stronger than they were in 2008, European banks are ill-prepared for more losses. “Under a French plan for Greece, banks across Europe are being pressured to roll-over their Greek bonds, turning them into much longer-term debt. Losses on this for banks might be spread over three years, but it still looks like a short-term fix. And the rate of interest that Greece would pay would not be commercial, meaning that lenders are not being properly compensated for risk.”
Other stories you may find of interest:
Fixed income investors unconvinced by attempts to solve eurocrisis
The majority of European fixed income investors are unconvinced by recent policy efforts to solve the eurozone crisis, according to Fitch Ratings’ quarterly investor survey
Eurozone debt crisis: Italy and Spain next?
After the second bailout for Greece, markets have now turned their attention to Spain and Italy, said Tedd Scott, director of global strategy at F&C
A solution to the European sovereign debt crisis?
Europe is still negotiating to find a solution to the European sovereign debt crisis, but this will inevitably end in a messy compromise that fails to resolve the peripheral solvency crisis and merely prolongs the agony until the next stage, said Stuart Thomson, chief economist at Ignis Asset Management
