The Bailout Tour of 2012
September 23, 2012
In 2010 I had the good fortune to travel to a number of countries in Europe, it was a combination of work and leisure that saw me visit Iceland, England, Portugal, Spain and Ireland.
I called the trip my ‘Failed Nations Tour.’ All of the countries that I visited were in varying stages of economic difficulty.
Iceland was still in economic disarray after their 2008 bank collapse and IMF bailout. I was able to see the beginnings of social unrest in Portugal and Spain. Union groups that flooded the main street in Lisbon was the largest demonstration I had seen in person, eclipsed only recently by a massive protest that I saw in Montreal over the summer.
As debt was spiralling out of control in these countries, unemployment was spiking, protests had already started to protest proposed austerity.
Two years later there has been seemingly little progress in solving the issues, all efforts of austerity have failed, and it seems that the only option to solve the issue is for those with the money, to help restructure the debts of the countries who need money.
I was able to visit both Germany and China recently, and it struck me that these two countries are being looked to support potential bailouts, however they are in two markedly different positions.
As the European debt crisis drags on, Germany is being forced to support ECB bailout measures out of fear that any negative events in the PIIGS or breakup of the Euro zone will negatively impact the German economy. It has taken a long time, but even the German electorate are starting to realize that Germany’s support sweeping bailout packages are necessary.
China on the other hand, is in a different scenario. Despite a slowing economy, China has the ability to be patient and selective when weighing its investment opportunities. The economic firepower that they possess is truly remarkable. We will see clear indication from the Chinese government when they feel the time is right in the form significant stimulus and also a clear indication to the Chinese people, that equities in China should be bought.
So, as has become obvious in recent weeks, Germany has stepped up and is supporting extensive bailouts in Europe, while the Chinese are being patient before they announce more radical stimulus (if deemed necessary.) The Bailout Tour of 2012 has highlighted some key differences between the politics and motivation of these two major economies.