Investors are concerned as the Euro Zone increases its lending limit again. The first concern is that there needs to be an increased lending limit. The second is that the extra €200 billion will not be enough to stop the Euro Zone from sliding back into financial chaos. A third concern is that as the Euro Zone increases its lending limit again the so called temporary increase will become permanent. What is the effect on profitable investing as the Euro Zone increases its lending limit again? A profitable investment timeline for European stocks will depend upon just how well the European debt rescue works and how well it sticks.
Didn’t They Just Rescue Greece?
So much of the drama of the last couple years focused on the bailout efforts for Greece. If Greece defaulted on its debts so would Spain and then Portugal and then Italy and then, maybe, France. That was the doomsday scenario. After painfully tedious discussions and negotiations the Greed bailout was completed. Along the way members of the Euro Zone agreed to strict austerity measures and the Euro Zone rescue fund was modified and set at €500 billion. The dispersal of funds to ailing banks and their subsequent investment in the bonds of various ailing nations helped drive down interest rates and all seemed well. Was this the time to be investing in Euro Zone stocks and scouting out other Euro Zone investment opportunities? But, now we hear that as the immediate rescue funds have been allotted and that more may be necessary. What does that mean for folks interested in investing in a European recovery as the Euro Zone increases its lending limit again?
How Much Is Germany Willing To Pay for Their European Market?
In discussions about coming up with funds to support banks and governments on the continent Germany is often referred to as the “paymaster” of the Euro Zone. With a GDP of over $3 Trillion, Germany has the fifth largest economy in the world and, by far, the largest in Europe. A distinct benefit to Germany of the European Union is that it erases trade barriers for German products across the length and breadth of Europe. However, Germany often has to pay for this trade advantage with support for its economically weaker neighbors. This is reminiscent of the United States dolling out foreign aid to nations across the globe in return for which these nations used to buy US farm products, military equipment, etc. Today the German electorate seems to balk more and more at the idea of supporting other nations in the Euro Zone. As the Euro Zone increases its lending limit again German Chancellor Merkel needs to worry about support in the Bundestag and from voters nationwide. It was certainly beneficial to Germany and the Euro Zone as a whole to stave off a Greek financial collapse . But, selling the idea of perpetually bailing out the southern tier of Europe to German voters is another matter. Likewise, investors need to stay abreast of the politics in Europe as well as the financial picture in order to profitably invest in the Euro Zone.