Personally I find the credit crunch the major risk in 2012… the Euro bank deleveraging means tighter credit conditions as banks try to clean up their balance sheets, Europe as an economy depends more on debt than the US does (17%-30% in the Euro VS 13-15% in the US). If the world found itself in a recessionary phase post Lehman, we are sure to be tipping towards one now. And as for policy, well no policy has historically been able to successfully be implemented with real teeth in a short period. Divorce is never pretty, so a jettison of a country from the EU, such as Greece is well not really going to help solve the problem, but create a series of other. On the flip side I don’t see the Euro falling apart and a return to national currencies (yes a little premature for me to make bold claims, but this is safe territory to speak freely). As for consolidating fiscal policy and a more disciplined budget policy in the EU that is no walk in the park either, and given that both Monti and the Greek PM were not voted in but were sort of forced into their positions they don’t have popular support- talk about probably a “Euro Spring” that could come. As for the ECB, I think it’s on a covert mission to buy up peripheral Euro zone bonds to try to stabilize the markets by bringing down yields- but stabilize and not cure. I think since the issue is Sovereign in nature and not private, confidence and the markets will remain mercurial, time is def the healer of all wounds here, time and change. But the markets are just not as forgiving. I heard a guy say on CNBC that economies are either accelerating or decelerating, they don’t “muddle through”… that’s just euphemism for it’s going to get worse before it gets better. I completely agree.
Interesting time for all of us to be a part, this era, a history in the making.
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