Traveling in Europe this week, I am struck by the universally negative tone in the English language press about business and economic prospects. Article after article points to declining conditions in countries throughout Europe, even the “safe haven” countries whose short-term debt trades at negative yields.
The only positive articles are those quoting politicians or central bankers. In the face of declining fundamentals, they continue to try to pump up confidence by pledging that the ECB will do what it must to keep the Eurozone intact. While possible in the short run if Germany is willing to assume an additional financial burden, it is fanciful to think that Greece and probably other countries will emerge from being permanent wards of stronger northern European countries.
At best, it appears that a few more patches on a deflating balloon may keep it from crashing this year. In the longer term, if the Eurozone is to survive as a viable entity, it will almost certainly count fewer countries on its list of members. The primary question facing investors will be how traumatic the transition will be and when it will occur.