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What worries many American investors is not the risk of short-term crisis, but the long-term structural challenges that are sapping growth, creating the potential for political and economic squalls. On Thursday, for example, it emerged that in the fourth quarter of last year the “FISH” economies shrank by 0.3 per cent, 0.9 per cent, 0.7 per cent and 0.2 per cent, respectively.
That may not look disastrous. But the Institute for International Finance, for example, is now forecasting almost no growth in France this year and further contractions in Italy and Spain. Or as Bill Blain of Mint Capital puts it: “The real danger in Spain is long term ... we are looking at another three to four years of economic misery just to get the Spanish economy back into the European Union’s 3 per cent deficit to GDP groove.”
Meanwhile, the recent data from France has – as the IIF puts it – proved “very disappointing”, creating “a reason to fear that the weakness will prove to be more lasting”. Or as one large American investor says: “The competitive problems in France are horrible and current policy is making this worse".
Even Holland, which has hitherto escaped market attention, remains plagued with structural challenges. “Holland has a property market that is in the process of bursting and the household debt is very high (Holland is four years behind Spain)”, says Stephen Jen of SLJ Macro in a recent research note. “The Netherland’s residential debt (mortgages) to GDP ratio is 107.1 per cent, compared with 52.4 per cent for Spain and 41.2 per cent for France.”
Many eurozone politicians would undoubtedly dismiss such concerns as more scaremongering; after all, they say, surveys suggest business sentiment and activity in the region is now picking up a touch. But even if these FISH fears turn out to be overblown – which is a big “if” – the key point is this: in the minds of American (and other international) investors fundamental questions remain unresolved about the political and economic structure of the region.
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