Watching Europe's Money
When the U.S. stock market cracked in mid-June, there was a brief feeling of schadenfreude across Europe. After a decade of triumphal finger-pointing, it seemed Americans were getting theirs at last. Then reality hit. If Wall Street was down 20%, Europe plunged 30%. It seemed doubly unfair. After all, Europe never tested the lofty heights of the U.S. stock market, and in most cases, its companies seemed to have avoided the heinous misdeeds of their U.S. counterparts--staggering CEO pay, phony accounting, rigged partnerships, and of course options, options, options.
But for professionals, the reality of one global financial market beholden to Wall Street never seemed more clear. For the past two months, Europe's bourses have moved in unison with America's. And despite declarations from politicians that Europe must now go it alone, the truth is that Europe has never been more in need of a strong global stock market. It's not individuals but governments that need it. To finance spending, they need to privatize some $130 billion worth of state industries. State-backed telecoms need to work out some $300 billion in debt. And Europe's state-run pension systems need to encourage the rise of private pension programs to offset the precarious condition of public ones.
Straddling this U.S.-European financial divide are Frankfurt-based David Fairlamb, our European economics correspondent, and London Bureau Chief Stanley Reed. In the past two months, David has written weekly about the fragile state of the Continent's insurers, banks, and national treasuries. He also has tracked the rise of the euro, as money sloshed back and forth across the Atlantic trying to find an alternative to sagging dollar investments. Answer: Outside of low-paying government securities, there isn't one.
Stanley has the opposite story. Britain almost never follows the Continent's economy. So right now it is overheating with property investments and loose government spending. But because London is a global financial center, its high-flying investment bankers are clinging to their jobs. "Britain is somewhere between Europe and the U.S.," says Stanley. "Its economy can't stay afloat for long if its main partners are floundering, and its financial players get hit hard immediately."
Backing up our Europe money mavens is a team of experienced New York editors. Finance Editor John Koppisch previously covered finance in the U.S., Asia, and South Africa. European Edition Editor Patricia Kranz cut her teeth writing about the U.S. Securities & Exchange Commission and went on as Moscow bureau chief to chronicle that Wild West of finance, Russia. Senior Editor Michael Serrill has 20 years of writing and editing financial coverage, and economist James Mehring is our resident global number-cruncher.
What's the collective wisdom from this bunch? David, a Brit, says he remembers the day Margaret Thatcher said she was selling off the state power company. "I said, `How can you do a crazy thing like that?"' Turns out you could. Europe, he says, "needs to get the grit out of the wheels of the single market and let it work. If there are foreign takeovers of banks and insurance companies, so be it." From a committed Europhile, that's honest advice.
By Bob Dowling, Managing Editor