Greetham: Eurozone needs United States of Europe
Fidelity portfolio manager Trevor Greetham says the the eurozone needs to become “a kind of United States of Europe” as member countries are forced to make increasingly difficult decisions to support the single currency.
Greetham says: “There is strong political opposition to the changes that will be necessary both from core countries that don’t want to transfer funds to weaker areas and from peripheral countries that don’t want to give up control over their economies.
“It will take years with periodic moments of crisis forcing politicians to take decisions they do not want to take.”
He adds: “In the end we need to see more sharing of burdens, by way of intervention, euro deposit insurance and common bond issuance, and we need more growth.
“Policy should aim to inflate the core, so inflate German wages, rather than deflate wages in the periphery worsening their debt crisis. You can get these countries more competitive by making Germany less competitive.”
Greetham, portfolio manager for Fidelity’s multi-asset range, says the US has made correct decisions on economic policy, resulting in greater exposure towards US stocks.
He explains: “The banks were recapitalised early, the Fed has been very supportive and the White House has opted to spread fiscal tightening over the medium-to-long term, against the advice of ratings agencies. And yet growth has been stronger, the housing market is showing signs of recovery and the US equity market keeps on outperforming.”
However, the portfolio manager remains underweight stocks and comodities in favour of bonds and properties.
“Since the financial crisis hit five years ago we have been stuck in a period of short, boom/bust economic cycles with the upswings very much reliant on stimulus from central banks,” he says. “It’s a time when diversification across a broad range of asset classes including government bonds and gold works extremely well. It is also a time where there are opportunities for tactical asset allocation.
“I am hopeful central banks will ease soon because inflation is dropping but the markets will probably need to pressure policy makers to act aggressively. In the meantime it makes sense to be defensive.”
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