Europe’s Economy and the Way Forward
In the opening session of the CFA Institute Fifth Annual European Investment Conference in Prague, Czech Republic, Anatole Kaletsky, co-chairman and chief economist of GaveKal Dragonomics, dissected enduring European political and economic dilemmas and evaluated a range of potential scenarios. Surprisingly, Kaletsky downplayed the real economic importance of Europe to the global economy and told hundreds of delegates there is a chance that Germany might even leave the eurozone to ensure the euro’s survival as a currency.
“Europe has been generating tremendous amounts of noise,” said Kaletsky, “but most of the signals for financial markets have come from the United States.” The eurozone has contributed nothing to global growth over the last four years, and as such a negligible contributor to incremental growth, its role is often overstated. “Europe has been the main source of day-to-day and week-to-week volatility in financial markets, but it hasn’t set the trends. The trends have been set by events in the United States and China,” stated Kaletsky, who argued for a more proportionate view of Europe by investors. Popular beliefs about the correlation between “risk off” trades and the euro are regarded as completely spurious by Kaletsky; the euro is more or less where it was in 2009, whilst the S&P 500 Index has more than doubled over the same period.