INVESTING with Mike Taylor, Piefunds
Circus Circus
Mike Taylor is the Managing Director of Pie Funds, a boutique Fund Manager that specialises in Australasian small companies.
09 486 1701 www.piefunds.co.nz
As we roll around to year end, it seems the European experiment has managed to survive another year, for now, who knows about next week! The European Union (EU) itself was formed in 1993 and is an economic and political union of 27 independent member states, i.e. most of “Europe”. The Union’s membership has grown from the six founding states – Belgium, France, Germany, Italy, Luxembourg and the Netherlands to now essentially, all and sundry. The Eurozone (EZ) on the other hand, which was established in 1999, is a monetary union currently comprised of 17 member states who share the same currency. Logically, you can’t be in the EZ unless you are part of the EU. The UK is part of the EU for example but not part of the EZ- they have opted out, but most EU members are expected to adopt the currency.
What started out as a grand plan is now essentially broken. There are major structural cracks which cannot be repaired – the whole structure must be rebuilt. Of course, they can continue on, patching the dike, but the next big storm surge that comes will flood the area – this could be next week, next month or next year. However, at some point the dam will burst. What that means for EU and the EZ is that they must either, change the treaty so poor performing countries can be kicked out, or create a “United States of Europe” where there is one central government controlling monetary AND fiscal policy, the purse strings. Whether Greeks and Spaniards would ever be happy with Franco-German rule and Berlin and Paris telling them what age to retire and how much they can spend on welfare seems unlikely short-term - a bridge too far.
Of late, the glaring differences between countries that are fiscally responsible, read the likes of Germany and Finland, and the PIIGS is that the two groups are diametrically opposed and no amount of crisis meetings are going to solve this. This leads me to conclude that the whole affair is starting to look like a circus. When the Italian Prime Minister compares himself to Napoleon in describing his achievement during his past five years in parliament you know the situation is doomed. But if you think perhaps I am being too harsh, then surely his comments a few weeks ago confirm that he really belongs in the circus ring, Berlusconi said, “I am the Jesus Christ of Italian politics. I am a patient victim. I put up with everything. I sacrifice myself for everyone”. Well yes, fortunately for all, he has now fallen on his sword and resigned – not quite a crucifixion though.
Meanwhile life goes on I suppose, equity and currency markets have been bouncing around like French Prime Minister Sarkozy’s new baby in a jolly jumper. Yes he is 56, yes this is his third wife and yes she is half his age.
Every piece of European news seems to drive a 5% move in global markets, up or down. But investors will one day grow bored of this, probably long before Sarkozy moves on to his fourth wife.
Circus Circus you say, and you would be right.
What becomes then of the Euro, the EU and the EZ? Right now that seems to be in the hands of the Gods (Greek and Roman). Those German tribes were all Pagan anyway weren’t they?
State King Of The Bays LEADS WAY...
