SIG’s Watson sees the beginning of the end for the euro crisis

Rupert Watson, head of Asset Allocation at Skandia Investment Group, says the decision by Germany’s Constitutional Court yesterday was just the latest in a series of events suggesting the eurozone crisis may be turning.

The eurozone has been battered by bad news for a long time but at last we are seeing some good news that looks like the first green shoots of recovery.

Yesterday’s news that Germany’s Constitutional Court has rejected efforts to block a permanent euro-area rescue fund paves the way for the €500 billion bailout fund championed by Angela Merkel. However, this is just the latest of a number of bits of good news. Others include:

– The European Central Bank will buy the short term debt of program countries in unlimited size

– The Troika’s (EC, IMF, ECB) confirmation that Portugal’s reform and deficit reduction plans are on track

– The IMF reiterating Ireland’s ‘strong program implementation’

– A further big rally in peripheral bonds. European bank equities are also very strong while Greek equities are up almost 50% since the end of May

While economic data remains very weak this easing of tensions within the eurozone could lead to a better economic performance next year, which would have positive implications for deficit reduction plans and the global economy. We continue to think that the ECB’s bond buying announcement last week will mark a significant turning point in the crisis. This is positive for the eurozone, the UK and the global economy and markets.


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