Economics: Europe Vis-à-vis America

Europe Awaiting Crisis

It seems that while America and much of the western world is about ready to really recover from their economic crisis, the situation is quite different for Europe which is still awaiting its own crisis. This might not spell such great news for the region. Indeed, CEO of Principal Global Investors Jim McCaughan notes how it seems that Europe’s debt crisis is now “entering a more dangerous phase. If the EU and ECB continue pretending this is a liquidity crisis, they run the risk of allowing inadequate fiscal adjustment, particularly in Greece.” Since debt levels are currently too high in the “peripheral countries,” what needs to happen according to McCaughan is a “continued large subsidy from the taxpayers in the strong economies.”

European Solution?

One solution suggested by experts such as McCaughan is “debt restructuring.” He does not believe restructuring is the way forward as it would have a “severe” impact on the financial sector, rendering the necessity for “recapitalization of many banks.” McCaughan also noted how factors in Spain are impacting the European situation too due to “increasing populist pressure against austerity, and house prices [that] are not yet clearing in the market.” Government finances could be hurt due to solvency issues too.

Good News for the States

There is some good news for America on the horizon with experts remaining “confident” about the country’s economic prospects irrespective of the fact that Washington is not succeeding in tackling the country’s debt problem. According to McCaughan, “for the rest of this year the US economic recovery is likely to continue, albeit at the relatively modest pace of 2.5 to three percent GDP growth.” Manufacturing and technology are at the forefront of the recovery. It seems like Washington needs to step up if there is going to be a real recovery. In conclusion McCaughan says, ““US equities are attractive against an improving economic back ground. Volatility arising from European issues or commodity concerns creates a buying opportunity.”