Europe will muddle through its financial crisis but is unlikely to craft an enduring solution to calm volatile investment markets, said Aaron Gurwitz, chief investment officer of
Barclays Wealth. The London-based bank manages $272 billion in assets globally.
“We think there's a good chance Europe will avoid disaster, but they won't do much better than that,” said Mr. Gurwitz at a press briefing this morning. “The problem won't go away anytime soon.”
The reason, to a large extent, is the mixed motivations of Germany, the biggest and most stable member of the eurozone. On the one hand, the Germans will almost certainly prevent a Lehman Brothers-like bankruptcy at a major European bank from causing a 2008 style financial crisis, Mr. Gurwitz suggested. “European policymakers have the motivation and means to prevent that happening,” he said. “The Germans don't want to see the global economy get hit and have the world blame them for it.” If any of the peripheral eurozone members do hit a wall, the Germans likely will direct the European Central Bank to buy up whatever debt is necessary to avoid chaos.
On the other hand, Germany is in no rush to become the financial backstop for the European Union. It would prefer to keep the pressure on countries such as Italy, Spain and Greece to get their fiscal houses in order. The world's second-largest exporter (behind China), also has benefitted from the weaker euro that the crisis has caused. The last 12 months have been the best for the German economy since East and West Germany were unified, Mr. Gurwitz said. “Germany has had a pretty good crisis so far,” he said. “They'll avoid the disaster scenario, but they also won't solve the problem too quickly.”
The upshot will be continued volatility in the investment markets, but also further modest growth in the global economy. And in that scenario, Mr. Gurwitz expects companies to continue to perform well. In the United States, business owners are earning their highest share of national income since 1929. And with the unemployment rate at 9%, that isn't likely to turn around rapidly. He expects U.S. companies to deliver earnings surprises on the upside.
“Our stance with clients is: ignore the day-to-day noise in Europe and maintain exposure to risk assets, particularly in the United States and emerging markets,” Mr. Gurwitz said.
