France is living in a dream world
Pfäffikon SZ, Switzerland – In November of last year I tipped France as the possible next sick brother of the European Union. Meanwhile it has become apparent that France has a huge problem. The French construction sector, for instance, is in a rough patch. President Hollande’s popularity in the mean time, has dropped to the lowest level for a French president in more than fifty years. This is not strange, certainly not when one considers that Hollande was shouting from the rooftops last year that the financial crisis was over. The dear fellow is, without doubt, living in a dream world and has become completely detached from reality.
Vulnerable
Unfortunately, the crisis is not yet over. In fact, Europe still lies in the intensive care. The problems in Europe are deeply rooted and difficult to solve. The European economy as a whole is fragile and still extremely vulnerable. It is for this reason, among others, that I find it irresponsible that Europe is picking a fight with Russia. Sanctions don’t work, will never work and are counterproductive. Former Shell CEO Jeroen van der Veer hit the nail on the head this week regarding this point. Europe cannot afford a further escalation in the conflict with Ukraine. Moreover, I would like to note that Russia lies in Europe and that we could really do without a European conflict.
One-sided Coverage
Several times already, I’ve pointed out the one-sided Western reporting regarding the conflict in Ukraine, but also regarding Russia in general. Last week one of our trainees brought an article to my attention authored by the Dutch journalist and retired professor from the University of Amsterdam, Karel van Wolferen. Van Wolferen clearly explains what I mean. The focus of the EU should be on further economic recovery, and nothing more than that. The European citizen is – deservedly so – tired of crises and in search of calmness and regularity
US picking up steam
On the other side of the ocean the US economy is thankfully picking up steam. This is an important point because this process could give Europe and Asia a much needed impulse. Much can be said about the Americans, but I’ve expressed my admiration before on how they have handled the crisis, even though it was probably intentionally set into motion at the time. It would not surprise me if investors are underestimating entirely the power of the current US economy. There are more than enough clues that support this conclusion. Reaching the 2,000 point level last week in the S&P 500 does not automatically mean the ride is over. Yours truly will be proceed with increased caution, but will remain optimistic on the long term.
QE in Europe
Meanwhile Mario Draghi from the ECB in Frankfurt has some food for thought. Draghi, in my view, is the real savior of the euro after his “Whatever it takes” speech in July of 2012. Draghi knows, better than anyone, how dismal Europe’s current situation is and is preparing investors for the European version of quantitative easing (QE), which would be rolled out in November 2014 at the very earliest. I expect that Draghi won’t act until next year because the implementation is complex.
President Hollande presumably thinks he’ll survive with help from Draghi. Supple monetary policy is no panacea and cannot solve the problems of Europe’s second largest economy. France and the EU as a whole should hope that Hollande does not keep adding new mistakes to the previous. For then, in a European context, the goose will truly be cooked.
It remains for me to wish you a good weekend.
Jan Dwarshuis is a senior asset manager at Thirteen Asset Management AG, where he is responsible for the Thirteen Diversified Fund. Dwarshuis writes his columns in a personal capacity and is not paid for them. Nor is he paying for his columns to be placed. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in the above shares and has no intention of doing so in the next 72 hours.
