Italy, Spain and Greece should boost their economies by reducing government regulations as they cut budget deficits to stem the euro region’s sovereign-debt crisis, said John Mauldin, president of Millennium Wave Investments LLC.
“Yes, you’ve got to reduce your deficits, but they are not doing the opposite thing that you have to do when you are reducing deficits, which is making the private sector more productive,” he said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “They are not taking steps to get rid of regulations.”
Euro-area finance ministers kept up pressure on Greece last week as they authorized the region’s bailout fund to raise money for a bond exchange, the first step in releasing funds from a 130 billion-euro ($173 billion) rescue package. Separately, the European Central Bank pumped 1 trillion euros into the financial system, pushing the risk premium on Italian 10-year bonds compared to German securities to the lowest in six months.
With the ECB action, “what’s happening in reality is that Italian institutions, banks, pension funds, insurance companies, are buying Italian debt, the same thing with Spain, so the debt that was on other banks is beginning to isolate to the countries where it is,” Mauldin said. “I think that’s the seed, the unintended consequence if you will, of the European Union being able to fall apart much easier.”
Separately, Mauldin said U.S. lawmakers are coming to the realization that the nation faces a “true crisis” if the deficit is not tamed.
“The biggest uncertainty is, are we going to deal with the deficit in a responsible manner and that’s the middle of 2013,” Mauldin said. “I think we have to do it by a large number of spending cuts and reductions and transformation of Medicare.
President Barack Obama sent Congress a $3.8 trillion budget plan Feb. 13 with stimulus spending and tax increases for the wealthiest Americans, spelling out election-year priorities that drew immediate Republican opposition.
“The U.S. can do just fine if we recognize what we got to do and get it done,” Mauldin said. “It’s going to have to take some bipartisan work.”
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