Who are the grown-ups?
When I was a child, we knew that any uncertain situation would be resolved by the grown-ups. Moving, job-loss, school: they would all be decided by the adults in the room and presented to the kids as a done deal. The same thing is happening in the world right now.
I’ve written before how the global economy will be resolved by China and the US. The other countries can look on if they want to, but the world’s economy really is a bilateral issue. China is the banker, and the US drives the engine.
That’s not to say that the rest of the world doesn’t have issues. It does. The Euro is a big one. Europe has integrated to such an extent that if the Euro-zone breaks up and the currency fails the fallout would be extreme. They can’t de-integrate without dire consequences.
In Europe, the grown-ups are Germany and France. Those two countries account for over half of the Euro-zone’s economy. They will bear the majority of the cost of any bail-out. So they’re the ones who have to decide whether to hold the union together in spite of Greek bonds and Irish banks. For the moment, it looks like their elites are still committed to the integration project that began with the Treaty of Paris in 1951.
But it bears watching. Because while the kids may not make major decisions in the family, they can sure knock things off-track.
Douglas R. Tengdin, CFA
Chief Investment Officer
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