May 30, 2013 | By Scott Minerd
Europe has had one of the nastiest winters on record, but hopes are high for a better summer. This is analogous to the economic outlook for the region. Brussels has announced a six billion euro program to reduce unemployment called a "New Deal" for Europe, echoing the language used by Roosevelt in the U.S. in the 1930s. This comes with a formal relaxation of the European Union’s (EU) austerity targets in exchange for labor reforms across the continent.
The focus of most of the policy reforms is on the periphery, but France aims to create half a million new jobs over the next three years, and Germany is preparing to relax immigration and provide training to reduce the labor shortage in high tech engineering jobs. The EU is also seeking to improve infrastructure with a program that emulates Build America Bonds called "Project Bonds." There is likely to be an announcement of a program in which the European Central Bank will securitize assets away from banks’ balance sheets by the end of the summer. Adding all of this up, it appears to be "Morning in a New Europe,” bringing about a number of attractive investment opportunities.
The credit environment in the eurozone’s real economy continues to deteriorate, despite a pickup in money supply growth. M3 money supply rose 2.8% year-over-year in April, while bank lending to households remained flat, and loans to the non-financial corporate sector fell 4.6% from a year ago. The divergence reflects the ongoing breakdown of the transmission mechanism for monetary policy, indicating an increasing need for European policymakers to implement more specific measures to address the credit constraints in the private sector.
Source: European Central Bank, Haver Analytics, Guggenheim Investments. Data as of 4/30/2013.
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