In an attempt to strengthen an ailing Euro, Nicholas Sarkozy and Angela Merkel decided to meet yesterday and hammer out a proposal that would in effect calm markets and boost growth. The proposal did anything but that and have sent European stocks downward this morning. The proposal recommended tightening the loose unity among the 17 Euro Zone countries in order hedge against further defaults. By pulling all financial policies and banks under one authority, Sarkozy and Merkel are hoping this strengthens the entire Euro Zone from potential default. The proposal is tantamount to uniting all of Europe (except for Swtzerland and a few others) into a centralized/ federalized fiscal union. While this sounds like a possible solution, there needs to be enough capital in order to make this work.
Germany Grinds to a Halt
German growth froze in the 2nd quarter. The numbers essentially meant that the strongest economy and anchor of the EU and future Fiscal Union (if it happens) may not have the strength to stabilize the disintegrating Euro Zone. Proposing a more centralized Euro government may sound great to the politicians and technocrats, but it does not sit well with investors.
What Happened to the Growth?
One company in Germany that has been a classic growth focused company with a global reach, BASF Gobal has slowed or missed its profit expectations in the past month. BASF has recently warned of a slowdown in orders across the globe and although there would still be a profit margin, the slowdown could be considerable. “We continue to be concerned about the development of the euro as well as the debt situation in some European countries and the US. Added to this is the persistently high oil price, which is having a negative impact on margins across our value chains and is leading to some customers being more cautious in their orders,” said Kurt Bock the CEO of BASF Global. The weakening economy around the world has hurt Germany since many of its companies, like like Siemens and Infineon Technologies compete on a global scale. More than this a drop in construction and energy production has added to the economic slowdown.
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