Of course, the same advice applies to many other countries as well, such as China, India, and Brazil. But the eurozone is increasingly turning into a two-speed economic bloc, and the potential political ramifications of this trend are amplifying investors’ concerns.
At a recent meeting of high-level investment advisers, one of the organizers asked everyone if they thought the euro would still exist in five years. Only one person out of 200 thought that it would not – a rather surprising collective assessment of the trending risks, given Europe’s current economic situation.
Right now, Italy’s real (inflation-adjusted) GDP is roughly at its 2001 level. Spain is doing better, but its real GDP is still around where it was in 2008, just prior to the financial crisis. And Southern European countries, including France, have experienced extremely weak recoveries and stubbornly high unemployment – in excess of 10%, and much higher for people younger than 30.
Sovereign debt levels, meanwhile, have approached or exceeded 100% of GDP (Italy’s is now at 135%), while both inflation and real growth – and thus nominal growth – remain low. This lingering debt overhang is limiting the ability to use fiscal measures to help restore robust growth.
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