There is a bright side to the Greek drama: the markets are reining in those who are fiscally irresponsible. In our assessment, the eurozone should work on reform that works with, rather than against, the markets:
- German banks are exposed to just about any crisis in the world because their domestic fixed income markets are underdeveloped; as a result, German banks are at risk of overpaying in their quest to deploy their capital, plowing money into U.S. subprime mortgages and Greek debt, amongst others. To achieve a more stable German, European and global economy, domestic fixed income markets around the world must be fostered. Such a move increases transparency and stability throughout the markets. Increased liquidity in the eurozone fixed income markets would also make the euro a more formidable competitor to the U.S. dollar. Such change can't come overnight, but should be a priority for policy makers and financial institutions alike.
- In our assessment, the euro is structurally sound. The ECB has pursued more robust policies than the Federal Reserve (Fed) throughout the crisis and is far further ahead in implementing its exit strategy. We are more concerned about UK sovereign debt than a contagion within the eurozone.
- However, while the euro may be on a strong structural footing, the political process to discuss problems in a euro area country is not. We believe it would be most helpful if the European Commission on Economic and Monetary affairs took a greater leadership role in streamlining the debate. In this context, we applaud EU monetary affair commissioner Olli Rehn's comments today that remind all eurozone countries, not just Greece, about their fiscal responsibilities. In the absence of such leadership, there appears a lack of confidence by European policy makers in their own currency. The noise created in these discussions may add to instability and uncertainty; such noise, however, may be more a reflection of the weakness in the process, but not the substance.
President and Chief Investment Officer
Author of SustainableWealth
This report was prepared by Merk Investments LLC, and reflects the current opinion of the author. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any investment security, nor provide investment advice. You are receiving this email because you have signed up for our newsletter or expressed interest in our views or services in the past. Please reply with 'unsubscribe' in the subject line if you wish to be removed from this distribution list. Merk Investments, 555 Bryant St #455, Palo Alto, CA 94301