Over the weekend the news broke that the Eurozone Finance Ministers are planning to bail out Spain’s banks with a credit line offer of 125 billion dollars. The markets immediately reacted positively, in the belief that this was a good move to help stabilize the Euro as well as the entire Euro zone. From our perspective, this is a short term move and not a long term solution to the problem. Spain needs critical structural changes that promote growth. This is the only way to will fix the problem and unfortunately this will take a lot of time. The current transaction just kicks the can down the road and buys Spain some time. Ultimately, all you have to do is look at Greece to see what bailouts mean — it does not change anything for the long term. Greece will be right back where it was a few months ago. The next European nation in line for help is Italy, but again, we believe the Eurozone countries not only need to curb spending, but create an environment that promotes economic growth or we will be right back in this position again in the future.
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Lyle
Thanks for the perspective; what do you believe is the long tern solution and how much short term pain will it cause?
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Richard, this is Richard, Lyle’s partner and the long term solution is very complicated. First Europe needs to restucture as a group how they operate. There was no mechanism for controlling spending, taxes, entitlements, rules etc. All of Europe needs two things..create a very business friendly environment with low business taxes and regulations, that will make manufacturers among other businesses want to move there and create jobs and secondly find a more reasonable balance in their entitlements system and generosity to their government workers. As for short term pain, the magnitude is difficult to assess as this problem exists in many of the countries…I can have that comversation with you off line.
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