Real Opinions

Dear America,

Even though we don’t always wish to admit it, your cultural footprint is staggering, impacting us and the rest of the world in many ways.  We communicate in English wherever we travel and we all have a romanticised view of the southern accent. We use Facebook, Twitter, Instagram while the younger generation are regular Snapchatters. The dating scene is synonymous with tinder, while we listen to American music, and regularly binge on our cherished Netflix accounts. In Europe, everyday life is very much “made in America. “

American history is also taught in our schools, and we are well versed in how your abandonment of isolationism saved the world from an otherwise doomed fate - for that we are, from a young age, taught to appreciate that we are growing up in era where America is today’s super power. 

However, with great power comes great responsibility. The blemishes that come with global dominance are acknowledged in this part of the world.

To start with we want you to know that free public health care works - it is not a waste of tax dollars.  Please can you also stop focusing so much on same sex marriages and abortions. The entire conversation seems archaic to us and we thought it was put to rest a long time ago. Let the LGBT community be in control of their own love lives and let women be in control of their own womb.

Also, what is up with the second amendment? How one school tragedy does not make you reconsider the constitutional right to own a gun astonishes us. Seriously the “right to keep and bear arms?” It sounds so very ‘game of thrones’ like. Maybe consider changing it to “the right to safe schooling?”   Now that sounds much more relevant! We have heard the pro-gun slogans and we spend a lot of hours amused by their absurdity - our favourite is “guns don’t kill, people do” seriously America? Please keep them coming, we get a real kick out of these.  How many more school shootings or innocent bystanders will there be before serious reform?   

Also, why is your national anthem sung before absolutely every sporting event? Weirder yet, pledging allegiance to the flag every morning by small school children? Sorry but that feels a bit excessive. Most Europeans would completely oppose our kids being forced to adhere to that type of forced patriotism. That is not to say that we are not equally patriotic and proud of our countries in this part of the world, but we do it without the constant standing and saluting the flag business. Let it come more naturally, from the things that the country offers its citizens.

Talking about fairness - we all agree that the slave trade was a dark time in history - we find your united view against this chapter in American history reassuring. However, it is time for you as a nation to acknowledge that many of the legacy issues continue to impact black Americans today. No white American will understand the daily struggles of black Americans and that is ok, but every American should at the very least be empathetic and under no circumstance should anyone deny the existence of racial inequality. Indeed, the progress made since the 1920s is positive and while certain African American athletes/movie stars have plenty of money, they have still experienced social injustice - despite their wealth and stardom - and if you have a voice in society many feel an obligation to speak up. Taking a knee during the National anthem is part of exerting your first amendment right and unlike the second amendment, one we totally agree with! To us it seems absurd that some Americans claim that taking a knee during the national anthem is a crime akin to treason all while suggesting that bearing arms is a God given right.

All this leads us to your infamous president - we think he is entertaining and we have never followed a US president more regularly then we follow this one. America, while entertaining, your president bewilders us. If he visited any major European city, it would likely result in mass protests as we disagree with so much of what he stands for. He has divided your nation and from our viewpoint, he stands to be a force of regress for the whole of mankind. He has threatened to use nuclear bombs, denied the existence of global warming, derailed the journey for gender and race equality and masked his own personal insecurities behind a macho bully persona - all under the illusion that this path will make America great again?  We are perplexed by how as a nation you seem to have been convinced that by only focusing on your own wellbeing and by overindulging at the buffet, you and those around you will automatically live a better life. If you are Christian, it is frankly unchristian.

We over here don’t care much about his affairs with porn stars, or him trying to keep his ex- lovers quiet. That is pure entertainment to us on this side of the Atlantic. We are generally more forgiving of our politicians when it comes to marital deceit. But President Trump has reminded the world that fear unites, and politicians can be forgiven for any misjudgement, regardless how serious, if they are consistent in their message of fear and hate. This is alarming. Trump consistently targets any one that opposes him, labelling them enemies, including and perhaps most worrying his attack on the free press, embodied by the oxymoronic “fake news” slogan. 

Free journalism is the corner stone of a free society and something that we very much cherish. We are not naive, and while we acknowledge that every journalistic outlet can have a political angle, calling journalists the “enemy of the state/people” just because they oppose you feels fascist like. When facts no longer matter, it is a dangerous state of affairs.

America, to summarise, you are now acting like the ultimate bully in the classroom and because of your size you think no one will dare disagree with you for fear of an ass kicking (sanctions, trade barriers, nuclear bombs etc). While this behaviour is making you appear respected, you are slowly losing all your old friends. You are instead spending your energy trying to make friends with the other bullies in the classroom (Russia) - but please can we remind you as your oldest friends to govern with the values that once made you an inspiration to the world.

Your oldest friend

Europe

Tell Greeks that there is no such thing as bad publicity and they will most likely disagree. A country contributing only 2% of Europe’s GDP is receiving a disproportionately large share of global media financial coverage and unfortunately for all the wrong reasons. Revelations of (i) an unfit public sector operating with historically generous civil servant remuneration packages (ii) a high propensity to avoid the taxman and  (iii) fiscal overspending- all led to disgraceful deficit levels even before the crisis hit the world economy- much of the scrutiny facing Greece is deserved, but not all of it.

The holy Troika, was established as Greece’s messiah – and austerity coupled with fiscal reform was deemed the path to redemption with an outlined vision of 120%  debt-to-GDP by 2020. A lot of people criticise Greece for not imposing enough austerity with EU ministers openly voicing their concerns that to little has been done- However, since 2009 Greece has shrunk their primary fiscal deficit from 10.6% of GDP to just 2.4% in 2011, make no mistake of it-these are impressive results and have been hard felt on the Greek people, particularly as the nation is submerged in a recession.

But austerity is not enough. The cost of financing their existing debt as well as the required inflow of foreign reserves needed to balance their current account deficit (4.6% in 2011) will continue to exert challenges on the wider government deficit (9.6% in 2011).

It seems that the Troika  prescribed the Greeks with the wrong medication and now the Euro zone’s willingness to save Greece has been diluted. With fogs surrounding the second €130 bn bail-out and the €100 bn write off of owned debt it becomes natural to question why the Eurozone have changed their standpoint?

Market participants are aware that Greece will not be able to honour the much feared March 20^th bond payment of €14.5 bn without the passing of second bail-out package. It appears that a disorderly default is now more likely than ever before, yet the fear of contagion has fallen. Investors no longer think that a Greece exit would cause the collapse of the Euro and so Europe's willingness to assist is questionable. It seems that an abrupt disorderly default carries sever contagion risk and Greece benefited from this fear- However a dragged out default reduces the contagion risk and with every day that passes the wider consequences of an orderly Greek default are diminishing.

My opinion is that Europe will survive and Greece might be the ultimate sacrifice – the ultimate illustration that fiscal mismanagement has consequences. Europe might end up stronger afterwards, but the Greeks will pay the ultimate price. It seems that the Troika commanded Greece to a slow and inevitable death while the rest of the world could come to terms with the shock of an European Sovereign defaulting.

In the recent European Union summit, discussions circulated primarily around hard budget deficit rules and the proposal to introduce a “deficit limit”. For some reason it is generally accepted that  government deficit’s and spiralling government debt levels are the core cause of the sovereign crisis looming over Europe. But is this really true? I believe that the expansion of deficit’s has merely been a response to the crisis and not the cause:

A cross-country comparison would quickly suggest that it was not excessive spending by governments that stimulated the collapse, but instead the deficit’s were the outcome of the huge banking bailouts that took place across all of Europe. The European debt crisis is just as much a banking crisis as a crisis of government debt. Fiscal mismanagement was never the sole cause of the problem but it seems to be the German Chancellors solution. It was after all excessive lending by the banks that lead to the collapse and not excessive spending by the governments (Greece is the exception to the rule).

The best way to reduce debt levels is by growth, something that seems highly unlikely given the EU leaders focus on Deficits – I do not understand how the “3% deficit limit” would assist Europe out of its current situation and prevent a future crisis. And would the rule not be altered if a large Bank in Germany was about to go bust and needed a large capital injection?

I do not see how removing a tool from the governments already limited toolbox is the solution to Europe’s mounting problems. Shouldn’t Europe instead be focusing on growth and tougher oversight of the banking system? Was this not a bank driven recesion? Seems ironic that the ECB are trying to solve this recession by directly improving the balance sheets of the very banks that got us into this mess.   

At its time of establishment, the Economic and Monetary Union (EMU) was political driven and not economically driven. A number of economists predicted the EMU's current problems twenty years ago, if only we had listened then...

Earlier this week Italy paid 8 percent to sell three-year debt. To put things in perspective, an individual with a decent job can borrow money from a bank at superior rates than a core European country. The classical CAPM theory and the way we think of asset pricing might need to be re-vised when the "risk-free" rate of return is so risky.

Today was a big day for Europe. Spain and France announced and successfully sold €8.1 bn of new debt- Thankfully the auction was oversubscribed. French and Spanish Banks, as ever before, played an active role in today's bond auction.

France in particular, took a brave and rather silly gamble with the sale of bonds- having completed all funding requirements I consider this a “asymmetric kamikaze” move. The auction was expected and did sell out, mainly due to subscriptions from local banks. Anything less than such an outcome would have created total chaos. The idea that markets would find confidence with French banks buying domestic French bonds as they have done for the last decades is rather naïve. For confidence, investors are looking for something extraordinary. Some form of re-assurance. Not just confirmation that the same banks are buying the same bonds. Also, let us not forget that France ended paying 204 basis point above German bunds, indeed confirming that investors no longer categorize Germany and France in the same bucket. And if the French government are trying to secure funds while the cost of borrowing is high (relative to Germany ofcourse), it makes you worry what their own internal expectations of the future are. 

So the world turns their head and looks towards the ECB for a solution and again the ECB turn their head in the opposite direction and Mr Draghi confirms their “limited” role as lender of last resort. We are quickly reaching the point where liquidity concerns are real and core European countries are struggling. Until something extraordinary happens I expect that Europe will continue sliding deeper into this debt crisis. For this extraordinary somthing, I feel that the ECB needs to provide some form of liquidity in this drying up market.