Is the Eurozone dying?
Photo: Dave Meier. Source: Picography
It’s certainly facing tough times. Economically moribund, most Euro government bonds carry negative interest rates. Countries on the economic periphery still face crushing debt service. Unemployment remains above 10% — the same level it was shortly after the Great Recession. And soon Britain will vote to leave the EU. Who can blame them? Who wants to tie their economic future to a 20-ton anchor?
But bad as things are right now, they were significantly worse just two years ago. Unemployment was 12% and headed higher. Europe was in the middle of a double-dip recession, brought on by the central bank’s attempt to “normalize” interest rates prematurely in 2011. The Eurozone economy was shrinking by 1% per year, and had been since 2011. Now, their economy is growing, the Greek people voted to stay part of the Euro, and there is economic crisis pushing people out. Various groups might be better off by going alone, but getting there is a problem.
Eurozone unemployment. Source: Bloomberg
Absent some calamity, the Eurozone will likely continue in its present form: a monetary union with centralized regulation but most fiscal and political decisions made at the national level. The biggest threats facing Europe right now are the migration of millions of Syrians fleeing civil war and the rise of reactionary nationalist movements. Neither of these directly affects the UK, but any flare-ups over the next month will likely impact the Brexit vote.
There are lots of things to be worried about, globally, but there always are. The Euro created a unified market with over 300 million highly educated producers and consumers. It would be a mistake to bet against it.
Douglas R. Tengdin, CFA
Chief Investment Officer