Germany fixes, Greece + Europe

The following is based on a daily newsletter from Andy Busch of BMO Capital Markets who, in my opinion, has a handle on Europe's woes and what needs to be done.

"It seems I spend more and more of my time thinking about leadership and expectations. The combination can be an amazing positive force in not only personal, but public lives. When action/inaction stems from low expectations and translates into lack of action, the outcome can be just as powerful. Europe is a perfect study of both cases."

I think by now, most everyone is familiar with the dishonesty of the Greek government’s fiscal position as well as the Greek taxpayer’s propensity to avoid paying what is legally required. Both have been stunning in their brazenness and stunning in the negative impact towards European debt and equities. Clearly, both felt they could game the system and be rewarded with the fruits of belonging to a group that they cheated to gain entrance into and cheated to remain in the club.

For Greece , the process lasted 10 years, but it finally caught up to them. It’s like a student coming out of university having never worked, with loads of credit card debt, then being surprised when no one wants to hire them. Did they think that the world was going to give them a free pass and further enable their bad behavior? Employers and lenders have a funny way of looking at this: they offer neither employment nor more money.

In the northern part of Europe , the country that led the rest of the continent into the European Monetary Union is taking ownership of the group and leading by example. PM Merkel presented a 9 point list of changes that need to be made to the group to ensure its sustainability including a provision for enforcing the rules. Merkel is showing the rest of Europe that they are serious about their own deficits and are serious about the rest of Europe following their lead.

This is exactly what investors and debt holders need to see coming from Europe : strong leadership to raise expectations that will achieve high goals. Change won’t occur overnight, but this is the strongest step taken in the crisis and may be the critical step towards resolving the problem of the group.

It’s simple, but effective: leading by example.

Source: Busch, Andrew B., BMO Capital Markets

Saverio Manzo
www.saveriomanzo.com