One of the most interesting and positive aspects to the Euro-zone crisis is Asia's response. China's new five year strategic
plan is a game changer! Their stated move to greater internal
consumption, and increased currency valuation will reduce their
dependency on foreign exports at a time when Europe's demand for exports
will drop. Given recent announcements on rates and reserves, It appears
that china may be stepping up those efforts.
From
a world GDP standpoint, it is easy to imagine that china's acceleration
may overshoot Europe's slow down. A similar dynamic can happen in India. Furthermore, let's give some credit to the new thinking in Europe
about capitalism and competitiveness. Behind the scenes of the protests
there is growing recognition of the unsustainable nature of their entitlements and work rules. Europe is awaking to the fact that they can
not survive unless they can compete in the world economy. (No more free
lunch.) Furthermore, the same market forces that are driving up their
borrowing rates are demanding a systematic response that is grounded in a
sound economic development growth plan. Therefore, as the euro-zone
transitions from a deficit financed economy to a self-sustaining economy
we can expect the returns to work their way into equity futures. Simply
put, the average European has to make a greater contribution to
productive society. German Chancellor Merkel would like the "writing on the wall" to be
somehow structured into the treaties as a price for a euro rescue. You
have to give her credit for having nerves of steel! She dangles her euro
partners' feet over the cliff knowing they are tied together at the waist.
Last but not least, as if the USA
Fed needed another reason to maintain aggressive monitory policy, they
surely have it. USA reserves, hot off the presses, are pouring into
Europe to help their bank solvency. Back home in the near-term the
success of USA treasury auctions is off the Fed and markets minds.
Inflation is tame enough to keep a less weary eye on. As for US's
defecit, there's much to not like about the dysfunctional way we
arrived at deficit reduction but it is reduction. All focus is on growth
to bring down unemployment. And even with the most partisan congresses
I've ever known, there is unanimous belief that we need to create
private sector jobs and reduce waist in government.
The only
question in developed countries is where does the growth come from, or
more specifically how do we achieve lasting, not artificial, private
sector jobs? Some of the answers are obvious, an so the question is more whether or not we have the political will to make the changes that will spur growth!
