Cast your minds back just 18 months ago. The investment world feared the euro would fall apart, law and order could break down in the periphery, and that a number of states – including France – would go bankrupt.
Even the most sage of commentators repeatedly attempted to predict the day the Greeks would pull out of the euro. As an investor who spends a lot of time travelling Europe in search of opportunities, and much of that time in discussion with people who run businesses, this view had always struck us as somewhat surreal.
In fact, company visits suggest the European economies are recovering much faster than many believe. We have just witnessed Greece’s return to the bond market with a €3bn (£2.5bn) sale, which yielded only 4.95 per cent and was eight times oversubscribed. What’s more, Italian and Spanish five-year borrowing costs are lower than the US.
In Spain, there is a sense of optimism. The property market appears to be stabilising, if not actually recovering, in prime locations. Export orders are at a 20-year high and tourism reached record levels last year. With deposit funding getting cheaper and lending now more correctly priced, the banking system is clearly moving back towards health.
It is worth noting how few of Spain’s 900,000 residents of Romanian origin want to move back to Romania – and fewer still to the UK, for that matter. The naysayers have also been wrong-footed by signs of recovery in France – which has been labelled as the next Greece in some quarters.
Company visits as far afield as Poland and the Czech Republic have also revealed signs of economic recovery – largely driven by a resurgent Germany. In fact, right across the region business managers have become much less nervous about the maturity profiles of their debt, preferring now to talk about capital expenditure plans, job hires and even merger and acquisition activity.
Our belief has always been that eurozone economies are both fiscally stronger and more competitive than their Anglo-Saxon counterparts. You only need to look at the modest growth in overall eurozone government debt over the crisis, or at the German trade account surplus, to appreciate the strength of the region relative to the US and UK.
The challenge has been the ‘lack of competitiveness’ of Europe’s periphery. However, the will in Europe to make the project work would always ease the process of austerity and reform. It is impressive how well the most challenged countries have managed both to meet Troika targets, as well as undergo wholesale economic reform.
Who would have believed six months ago president Hollande of France would have appointed a right-wing prime minister, such as Manuel Valls, to usher in ‘a true revolution’ – including lower taxes for those on low incomes and a dramatic reduction in employment costs? And this is to be paid for by a significant cut in government spending.
In a few years’ time we may look back upon this time as the critical moment when the periphery of Europe again became competitive, and the future of the euro was assured. Perhaps it is time that we start thinking about when to hold our own referendum on joining the euro.