The Euro Crisis- A Look Beyond the Headlines

Investors in Europe and around the world are deeply worried about the impact of the euro crisis on the economic situation in Europe, and indeed on the global financial system. The threat of the crisis worsening has led many investors to abandon the equity markets.

In spite of an assortment of threats and opportunities in every part of the world, the media and investors in this moment are focused on Europe. The view of impending doom presented by media headlines is overly simplistic.

The European leaders have been seen as dithering as the crisis builds. Certainly, strong decisive action earlier in the process might have stemmed the contagion. The media has been particularly critical of Germany and its Chancellor, Angela Merkel. There is more to it than an unwillingness on the part of the Germans to bail out their less productive neighbours.

One of the fundamental problems is that the political systems in many of the peripheral countries stifle growth and productivity. There are a plethora of regulations that favor various special interest groups at the expense of the broader economies of those countries. The measures imposed on Ireland and Portugal as conditions of bailouts have seen their new governments make big structural changes that already have their economies on the path to recovery.

In spite of the rioting in the streets of Greece, their new government received overwhelming endorsement from the parliament to implement the tough austerity measures attached to the bailout funds.

Attention has now turned to Italy. A recent auction of six-month bonds was priced at an interest rate of 6.5%, double the rate of a few months ago and the highest rate paid by Italy since joining the euro. Two-year Italian bonds in the secondary market reached a record 8% yield.

Investors (at least those who do not hold short positions on European bonds) are clamoring for the European Central Bank to step in and show some strength in the bond markets. They also want to see euro bonds, that is, bonds that are backed by all 17 members of the euro.

Germany, as the largest economy and the biggest contributors to the European Central Bank (ECB) and the various bailout schemes, is opposed to euro bonds and to a wider role for the ECB. The reason for that intransigence goes far beyond their near term self interest: the Germans want to see solid, tangible and lasting confirmation that the more indolent among their neighbors will take the steps necessary to put their economies on a path to higher growth and productivity.

It was only when Greece was on the brink of bankruptcy and complete financial ruin that Greek lawmakers took the daring step of passing the blueprint for structural reform as riots raged in the streets. Click here to read the full article

Click here to find Lawrence's next media appearance

Learn more about the Subscriber Investment Summit HERE

Subscribe - Get 20 issues per year, plus instant alerts on breaking mining company developments, archive access, and other subscriber exclusive mining information when you subscribe .