Shock and awe.
That’s what the European central bankers hoped to produce with their trillion dollar plan. On the face of it, they did just that. Global markets recovered about 5%, or half of the $3.7 trillion decline they’ve seen since the debt crisis hit the markets late last month. Some say the bailout doesn’t have enough teeth to force fiscal restructuring; some say they’ve come too late in the process. But no one has said it isn’t enough.
The Euro-zone has an economy almost the US. And their aggregate level of public indebtedness is about the same as ours. Now they’ve come up with a plan bigger than our TARP fund to shore up the finances of the marginal countries that threaten the Euro as a currency. This isn’t unreasonable. The TARP worked to stabilize the banks. This just might work, too.
Now investors can focus on what the global economy is doing. In the US we’re moving up the slope of our “U-shaped” recovery, as more employment begets more employment. In Europe the signs are encouraging as well. In beleaguered Spain, electricity consumption is up 5% over a year ago, a solid indicator of growth in a country with 20% unemployment.
Fears that a financial meltdown in Europe could lead to the Crash 2.0 have, for now, been stemmed by this aggressive plan. Let’s hope that this long-running Greek tragedy can have a happy ending.
Douglas R. Tengdin, CFA
Chief Investment Officer
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