09.19.2011

Europe At Standstill

09.19.2011
Terry Flanagan

Solving the Eurozone’s sovereign debt crisis will be an organic process, and one that will take time, according to investment manager.

The global financial crisis of 2008 stemmed from the idea that consumers, companies, and governments have borrowed too much money.

For most of 2010 and now 2011, Europe has been plagued by a sovereign debt crisis, resulting in region-wide uncertainty about the repercussions of too much borrowing, and the insolvency of member state governments.

The solution going forward will be a hard approach—vastly different from the U.S. preferred method of “inflating away debt,” according to Neil Dwane, chief investment officer of RCM informed, a subsidiary of Allianz Global Investors with an estimated 155 billion under management.

For Dwane, Europe’s history, tainted with wars and political unrest, have propelled the region to work together from the bottom up to build a solution, which will be to let Greece, Spain, and Italy “survive in the real world” after living through a series of bubbles and borrowing at cheap interest rates.

“We’re seeing a different solution to the problem we have in the U.S, U.K., Japan and elsewhere, because it’s the cultures that form economic policy,” Dwane said. “It started in the late 1950s after the Second World War; Europe never wanted to go to war again. People underestimate the political will to keep coalescing.”

Dwane further remarked that economically, the region “didn’t want to go back to the Great Depression of the 1930s, and that Germany, specifically, didn’t want to go back to the hyperinflation of the 1920s.” Such events are “guiding how people are looking at their economies, and how they respond to the challenges of too much debt.”

Germany has risen to become the region’s strong hold, which has stirred pressure on the country to take a large role in solving Europe’s problems.

“They have a legal framework, and they have a constitution, and they have to check if it’s ok for Greece to print money that’s not an obligation of theirs, and they get criticized for this apparent lack of willingness to move things forward,” Dwane said. “There are legal processes here, and they need to find the right legal process to move forward.”

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