Is the era of austerity over? According to recent statements, it would seem so. In fact, there have been a series of declarations by officials of the European Community regarding the adoption of a less "intransigent" strategy for solving the European crisis.
"Austerity is no longer enough” (Enrico Letta – Prime Minister of the Italian Government)
“We are reaching the limits of effectiveness and political and social acceptance of our economic policies” (José Barroso – President of the Eurogroup)
“We need a pro-growth policy” (Eurogroup, official statement)
“European countries in difficulty, such as Spain, Portugal and Greece, should be given more time to reduce budget deficits” (Christine Lagarde, IMF)
That the "good" intentions to adopt looser and more growth-oriented economic policies in the EU turn into a coordinated (and sustainable) action plan in favor of recovery is by no means a given. However, it is now evident to anyone who looks around and reads some economic statistics that austerity-only policies have disastrous effects for the economy, especially for the more fragile economies of the euro area. Italy in the lead.
There is no shortage of debate of an academic nature: in fact, a heated discussion is raging on the verge of a soap opera on the famous article (originally distorted by an embarrassingly trivial miscalculation) by the economists Rogoff and Reinhart. Article from which, rightly or wrongly, many have concluded that a public debt exceeding 90% of GDP negatively impact on economic growth. Now these conclusions (in my opinion one of the clearest examples of confusion between causality and randomness... but maybe we'll talk about this another time) are being questioned by a part of the academic and journalistic community.
In short, austerity is not fashionable at all and Europe finds itself at a crossroads: it is necessary to change course, because this way one does not go anywhere. Although there is not yet a shared strategy that goes in this direction, it is clear that the attention of the countries of the Eurozone has shifted towards those reforms capable of restoring citizens' confidence in their own future, revitalizing the "Europe project" and putting center of their programs there Political Economics.
It's about designing a common recipe for the eurozone, with coordination between countries, which favors a economic growth sustainable. Between most probable courses of action there are the following:
– one industrial policy that revitalizes the market of work, reducing the unemployment, and that raises the investments, especially those related to innovation, research and development;
– support for small-medium enterprises, especially in Italy, by promoting entrepreneurship;
– tax policies of rationalization of public spending (for example, in Italy, through the dimensional reduction of the Public Administration and its digitization);
– policies attentive to one sustainable and environmentally conscious development.
These actions, properly applied, could lead to improvements in the medium term on the employment front, with a consequent relaunch of consumption, investments, corporate profits and, ultimately, economic growth, in Europe and in the rest of the world. Dream scenery.
It must be admitted though that a serious strategy for solving the European crisis has not yet been concretely designed by the continent's political leaders. We are all looking forward to it. So the risk of abandoning austerity without carrying out serious structural reforms of crucial importance exists (…we know the European political leaders, the spirit of Cetto La Whatever is always lurking). This could endanger the relative financial calm induced by the action of the ECB in the last 12 months. In short, we must avoid throwing away the work already done.
LET'S GO FROM THE CITIZEN'S POINT OF VIEW TO THAT OF THE SAVER
Let's assume we are optimistic and want to define a portfolio that has this virtuous return to growth scenario as its investment thesis through a relaxation ofausterity. Let's try to schematize in a (very) approximate way the main risk factors:
Le investment ideas to focus on correspond to the area highlighted in gray in the figure (click on the image to enlarge it): one scenario consisting of the combination of economic growth, lower systemic risks (those that have a devastating impact on the entire world economy or significant portions of it), plausible inflation risks (which often accompany the return to growth).
Advise Only tried to locate the investment themes to be preferred in this scenario:
– government bonds of countries PIIGS extension with high duration, i.e. long-term), which would benefit from a further decrease in spreads and yields;
- medium-term government bonds indexed to Italian inflation, to protect against the possible growth of inflation;
– European consumer stocks, which should revitalize; let us think in particular of discretionary consumption (more penalized during the crisis), but also of the consumer goods sector;
– European equities in the industrial sector, with particular emphasis on the small-mid cap segment, which could receive the greatest boost from an economic recovery;
– actions in the digital and technological sector, on which there are likely to be incentives and innovation;
– actions related to the theme of “private equity", due to its function as an "enzyme" which stimulates entrepreneurial activity (benefiting from it in terms of profits);
– shares of the sector “materials" (construction-related material, packages, basic materials, etc…) on a global scale, heavily penalized in prices today (excellent valuations = P/E ratio and P/B ratio below the historical average), but with good potential in case to restart production.
These investment ideas went straight into un portfolio shared in the Advise Only Community: “Less ” (if you like, is a cousin of ). It is certainly not a portfolio for the cowardly, as it focuses on a well-defined scenario (sustainability of the euro area and recovery of economic growth), which has a fair probability of happening (we all hope so)… but which could also not happen. With all the associated financial risks.
I stop here. Because the best thing is to go and find out wallet details”Less Austerity” on our Community and discuss it there.
