€uro view: Light at the end of the tunnel may be oncoming euro train
As this is being written, it feels as though we are on the edge of something unpleasant.
The eurozone banks were not subjected to the public stress-testing that their American and British counterparts were after the 2008 crisis. This is in the process of changing. And from this, we see light at the end of the tunnel.
Whether this light is daylight or the onrushing euro locomotive we’re yet to find out, but there are one or two reasons to be slightly more cheerful than the markets are telling us to be.
Firstly, the very fact that we can look back and see an outcome from the unprecedented events of 2008 is a positive. Policy was made up on the hoof back then. This time around the eurozone policymakers have a track to run along, however unpalatable it may appear. None of the choices that any of us face are pleasant, quite frankly, but some are less bad than others.
We like contrarians, as the herd more often than not gets it wrong. We repeat some comments from Barry Norris, partner at Argonaut Capital and an expert on Europe, whose contrarian views make interesting reading.
On funding for new bond issuance he said, "Any new sovereign bonds issued will have access to this funding backstop (European Stabilisation fund) contingent on agreement with the EU/IMF on appropriate fiscal reforms. This makes assumptions of imminent sovereign default seem far-fetched. No one is going to run out of money soon."
On the imposition of austerity measures, Mr Norris said: "The peripheral countries have no credible option but to accept these terms. Leaving the euro would overnight devalue all of a country’s assets and leave the value of their liabilities unchanged, hence wholesale bankruptcy of a nation. Soon, only those for whom attending demonstrations is a hobby or a career choice will be left. This diminution of civil strife rarely gets reported."
Andrew Merricks is head of investments at Skerritt Consultants
