Fund buyer launches strong attack on German and eurozone leaders
A European fund allocator has launched a strong criticism of Germany’s politicians, and their “fierce resistance” to some measures to rescue the trading bloc and its currency.
Dirk Wiedmann (pictured), head of investments at allocator Rothschild Wealth Management, said his firm had “little confidence in the ability and willingness of policymakers to deliver quick and sustainable solutions to the crisis plaguing the eurozone. We remain concerned about a disorderly collapse of the euro.”
His words, delivered in a briefing note distributed today, came as embattled eurozone politicians are busy defending their attempts to save the eurozone and its shared currency.
Standard & Poor’s has criticised their efforts so far and overnight it put 15 eurozone nations on negative credit watch.
RWM’s Wiedmann clearly shares many of the ratings agency’s criticisms of eurozone politicians.
He said: “Policymakers haven’t done anything like enough at a time when accelerated austerity and ebbing confidence are pushing large parts of the continent into recession. The very survival of the single currency remains in doubt.
“Eurozone policymakers are still trying to muddle through, at a time when bold and drastic action is needed to turn sentiment around.”
But he saved some of his harshest criticisms for Germany’s policy makers.
Berlin has “fiercely resisted” rescue measures such as further bond purchases by Europe’s central bank and pooled borrowing via Eurobonds, he said.
German chancellor Angela Merkel restated her opposition to Eurobonds early yesterday, and was supported in this by French counterpart Nicolas Sarkozy.
Wiedmann said: “Much now depends on the future stance of the German government. If Germany doesn’t relent, tensions will continue to rise and a break-up of the euro will edge closer.”
But he added even if German policy does change, complex structural reforms will still be necessary, including fiscal integration and changes to employment laws, entitlements and retirement ages.
“These will be politically difficult and take many months and years to implement. Closer fiscal and economic integration is also required, but the loss of sovereignty this involves may be fiercely resisted by voters.”
Wiedmann said domestic politics in eurozone nations had already obstructed some important measures.
Restructuring Greek debt had been “derailed” by domestic politics, he said.
A “new technocrat government in Italy has struggled to win back the confidence of bond investors”.
And the ECB’s rate cut in November “did little to re-assure markets”.
Against this background, RWM has a cautious allocation with underweights in equities, and low allocations to commodities and real estate. High weightings are in short-term bonds, cash and gold.
Among bonds, RWM favours high quality credit instead of sovereigns. “The fundamentals behind most government bonds are poor, yet these securities are also very expensive and, in our view, well overvalued.”
RWM trimmed equity exposure further in November’s market bounce. “We recommend a large underweight position in equities, not least because we believe the eurozone debt crisis will continue to rage in the weeks ahead.
“In adopting this approach, we largely miss out on any strong rallies in markets, such as that which followed the coordinated boost to liquidity by five central banks at the end of November. Nevertheless, we firmly believe that our defensive stance is the right one,” Wiedmann said.
“At the same time, we are also investigating options strategies that would allow us to benefit from any surge in equity markets, thereby hedging some of the ‘risk’ to portfolios from positive surprises.”