Comments on the last quarter:
As in most of 2011, “macro” issues overwhelmed the last quarter: although the US and Chinese economies are probably doing better than most people expected just a few months ago, the “noise” emanating from Europe has dominated financial markets. We are not going to bore our readers with yet more analyses and predictions regarding the Euro saga. As we said in 2007, this is a “balance sheet” recession created by an excess of debt in developed markets, which take many years to clear up. There is no “solution” to the European crisis: new mechanisms will evolve over time and slow adjustments will eventually bring European econo-mies to normal rates of growth – which will probably be somewhat lower than in the past for demographic reasons. The core Euro zone problem is not “excessive spending” by some countries’ governments (Greece being an exception) but a crisis of payment arising from the very different productivity evolution in the different countries. This difference in productivity creates permanent imbalances between intra-European exporters (basically Germany) and intra-European importers (mostly the rest). In a large, closed economy, which the Euro Zone has become, these imbalances will take many, many years to correct: it was easy to devalue the lira overnight, but it took ten years (1997-2007) to lower German labor costs to their current competitive position
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201112 LTIF Newsletter
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