Tuesday, September 20, 2011

France, Italy and the war's fluid front

China has stopped doing business with a number of French banks, and Siemens, for one company, has stopped as well. There is concern that the banks will be hit by a possible Greek default on public debt next month. A good amount of Greek debt will have to be paid or rolled over, the Greeks and the troika of EU, IMF and ECB have been at an impasse, and Germany has just announced that it can't possibly vote on new support until 2012. A default is coming, and the Chinese, who have excellent business acumen in these things, are pulling out.

The silver lining in this cloud is that they will probably be back, purchasing assets and shares at a bargain at a later date, but not before France is significantly weakened, and before the Chinese have strategic positions in French investment banks. Note that will come with political as well as economic influence.

Italy has also been downgraded, and the country is unable to find a replacement for the outgoing Berlusconi.

The war has extended beyond Greece, Portugal and Spain and is now rampaging in France and Italy. The Dutch and the Germans are retrenching budgets all the more to compensate and ringfencing themselves from the carnage. Spain seems to be holding the fort well enough.

This isn't the end of it. Indeed, because the Europeans will not support the economic stimulus plans that the US is proposing, there will be a downward spiral for the next decade in which employment, wages and general economic welfare in Europe will decline. The only people to benefit will be the ones with enough cash to buy in at a discount.

All of this assumes that a default doesn't happen, and/or that Greece remains in the euro. But leaving the common currency may not affect the other countries that are now in the midst of the war.

Assuming Greece stays, invest in emerging markets. Growth will not be happening in Europe for a while.

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