LAS VEGAS ‚?? Europe‚??s ‚??elite‚?Ě tend to view the region‚??s ‚??economic mess‚?Ě through a political lens that causes reluctance among key leaders to impose austerity measures to curb hefty deficit-spending in Greece, Spain and other nations, said David McAlvany, CEO, McAlvany Financial Group, at the recent FreedomFest conference here.
Despite the current downward pressure on the price of the euro due to fiscal problems and recessions in a number of countries there, the currency likely will survive and potentially become a challenger to the U.S. dollar‚??s ‚??monopoly status‚?Ě as he world‚??s reserve currency, McAlvany said. Reasons why the euro should survive include continued efforts to save it and to stabilize the region‚??s economy through coordinated policies among European governments, he added.
Indeed, a euro summit conference that ended June 29 included discussion about creating joint European Union (EU) banking supervision, McAlvany said. Whether or not the unified banking supervision is enacted remains to be seen but it does show strong interest among member nations in preserving the euro.
The original intent of creating the euro was political and fiscal integration but the current crisis now allows politicians to achieve what otherwise might not have been ‚??democratically feasible,‚?Ě McAlvany said. However, a fiscal union in Europe is ‚??not possible‚?Ě at the present time.
However, don‚??t bet against the elite in Europe, McAlvany said.
Indeed, European Central Bank President Mario Draghi said last week that he would do ‚??whatever it takes‚?Ě to halt the region‚??s economic crisis. For example, Draghi expressed interest in having the ECB buy sovereign bonds from fiscally embattled countries such as Spain and Italy to curb big price hikes that have put a financial squeeze on their citizens.
Draghi is seeking to meet Jens Weidmann, head of the Bundesbank, to discuss the plan and gain support for it prior to the ECB‚??s Governing Council meeting on Aug. 2. Draghi likely faces a challenge, since the Bundesbank has resisted such a plan, which potentially would violate an ECB statute designed to prevent it from financing sovereign states.
However, ‚??wild populism‚?Ě is emerging in Europe, following in the wake of the ‚??Arab spring,‚?Ě McAlvany said. Greece and Spain, in particular, are at the top of the list of European nations at risk for social instability and rapid political disintegration, he added.
While Europe‚??s elite want integration, an unlimited price for ‚??progress‚?Ě is not willingly borne by the Germans, McAlvany said. The Germans are not willing to be the ‚??European plow horse,‚?Ě he added.
‚??If certain conditions are met, Germany will pay,‚?Ě McAlvany said. ‚??And if they are not met, Germany will play poker with any single European country.‚?Ě
Paul Dykewicz is the editorial director of the Financial Publications Group at Eagle Publishing Inc., www.eaglepub.com, of Washington, D.C. Eagle publishes two free, e-letters, five weekly trading services and four monthly investment newsletters, Forecasts & Strategies, Successful Investing, High Monthly Income and The Alpha Investor Letter.