Painful years ahead for Eurozone – Threadneedle
The Eurozone’s problems are far from over, Fred Jeanmaire of Threadneedle has warned. At the same time, deleveraging will mean that “the strong will get stronger”
Jeanmaire, fund manager in the asset manager’s European equities team, warned that austerity measures and deleveraging might mean that peripheral economies might face years of little or no growth.
“We do not expect further policy action from EU officials in the short-term. Much of that work has already been undertaken in terms of establishing the EFSF, the European Stability Mechanism, and reforming the Stability and Growth Pact. Southern European states have shown no intention to surrender fiscal sovereignty for now. It is interesting to note that in the US, inter-State fiscal transfers can be as much as 20% of a State GDP compared to a maximum of 3% in Europe. We believe that Germany would, perhaps surprisingly, have accepted the necessity for more transfers to the South. Given the example of East Germany, the restructuring of peripheral countries is likely to take 10 to 20 years to complete.”
He went on to say: “While some companies will struggle to keep their heads above water in this environment, the strong will get stronger. Some businesses will even grow faster as a consequence of the side effects of deleveraging. Some companies that focus on low cost could fare well. Examples include the Spanish hard discounter Dia, the French telecoms discounter Iliad and the budget airline Ryanair. They could benefit from exhausted competitors and value-hungry customers.”
Meanwhile, Jeanmaire warned that Germany would face the opposite problem of an overheating economy, requiring cool down measures such as a re-localisation of monetary policy and regional-specific capital requirements for banks operating in Germany.