Can the same therapy heal different patients?

After the FED has shown some continuation in their taper-exit strategy I have heard a lot of talk about emerging markets and the issues associated with them. I agree that their economies are still too small and inefficient but guess what?They are growing!! Instead I don’t hear much talk about the problems in the developed countries. Instead they are seen as “too big to fail”, thus in periods of uncertainity they are attracting most of the investments. But how healthy is to invest in a place like europe where the growth is next to zero?I think the situation in Europe is not that good. Basically we have a room full of sick people and the doctor (the ECB) is trying to use the same therapy to cure all of them regardless their problems.  Moreover, the medicine they are using is both bitter and…homeopatic. In fact, while other countries are introducing stimulus programmes to pump money in their economies, the ECB instead, is reducing their balance sheet (thus they are taking money away from already anemic  economies). Some would argue that the future generations won’t have to pay the interests for the current generation (that is so unfortunate that has to pay also for the previous generations). But what about growth? The youth unemployment is breaching record high in europe and young people are the ones that usually fuel the economies. Indeed, they are the biggest spenders. So we are in a situation in which the biggest spenders cannot afford to spend any money so we try to hurt the savers by lowering the deposits rates. I think Alfred Hitchcock could have directed this movie. But It doesn’t seem to end up well. But who is benefitting from this situation? Well while the austerity measures in Europe are having ripercussions on the mid-class (the most taxed) rich people with big capitals not only can afford to park their money in tax-heavens but can also afford to borrow money at record-lows interests to leverage their investments. But not all european countries are suffering the same. Germany is the biggest winner in this situation. I have to say that the mean reason for this is that in the pre-crisis period they reformed and tried to make their economy more efficient. Nevertheless, this is not the only reason. Being in Europe is helping a lot their exports. In fact, their strong currency is imposed also to their neighbour countries, so for them buying goods from Germany is not as expensive as it was pre-euro. What I think doctor ECB should do is to weaken the euro so to boost exports in the southern economies of the eurozone. The reason why they didn’t do it so far, is that the northern europe countries are worried that the inflation would get too high. But, with a growth so low the “risks” of getting hit by a wave of inflation are quite low. Moreover, we have a mere 0.8% inflation when the target is 2% and it has been like this for a while now. I don’t think there is much to add to this but just: Mario do whatever it takes!!

Written by

Gianluca