Much has been said about the European crisis and understandably, mostly in a negative context, but I wanted to offer you a different point of view– from a macro and longer-term perspective. In my opinion, this crisis will strengthen the Euro Zone and create a stronger foundation for the global economy, based on stronger fiscal alignment.
Addressing Foundational Holes
This crisis is testing the very founding principles of the European Union. In other words, there have been several economical crises, such as Ireland’s, Greece’s and soon to be others, that have forced the politicians to scramble, but also to finally address the holes within the loosely-framed European economic policy. Yes, these times are unprecedented, concerning and they certainly have short-term negative implications, but my contention is that these holes would have never been addressed, had the problems never arisen in the first place.
The most hotly debated topic between the US and China has been the undervalued Chinese Yuan, but an equally important development has been quietly developing over the last year– its internationalization. Having made more than 12 trips to China throughout the last two years, this topic has been by far the one discussed most with various Chinese executives and officials and I believe it will have major implications.
So why is the government pushing the globalization of the Yuan? My contacts tell me that it is due to the government’s focus on quality of growth instead of absolute growth. There are two specific goals: 1) raise the standard of living by getting the Chinese to save less and buy more, 2) increase wages by dramatically increasing the value-add part of China’s manufacturing industry.
A convertible, international Yuan will support China’s growth strategy in the following ways:
- It will allow the Chinese to invest their savings at home and abroad. This in turn should boost the rate of return on their savings, and their disposable income, thus increasing their willingness to spend.
- It will help China’s economy to balance trade and investment flows, an essential requirement as the economy becomes more sophisticated.
- It should lead to the further development of China’s local capital markets and modernization of its monetary policy, including continued liberalization of interest rates. This would also become an effective tool to control inflation, particularly as wages rise.
As some of you know, I am an Italian citizen and a very proud one. With the recent changes in the country, many people have asked for my thoughts on what will happen to Italy moving forward. I feel that Italian politics have consistently undermined a nation that is full of creative, passionate and intelligent people. It is, therefore, at this moment in time in which we find Italy embroiled in economic dire straits, that I see an opportunity for Italy to make a clean break from the turmoil it has known for more than half a century. (Note: There have been 60 governments since Italy was established as a Republic in 1946).