Q&A: EWI's Take on Europe's Debt Crisis, Part I

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Q&A: EWI's Take on Europe's Debt Crisis, Part I
Analyst Brian Whitmer discusses whether Europe's new bailout plans have a future

By Nathaniel Williams
Fri, 06 Jul 2012 11:15:00 ET

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EWI's European market analyst Brian Whitmer recently spoke with the German financial blog Wirtschaftsfacts.de about his outlook for Europe's ongoing sovereign debt crisis and the future of the European Union. As editor of The European Financial Forecast, Whitmer also contributes to our monthly Global Market Perspective -- a comprehensive, 50-page publication that covers more than 40 key markets for global investors. (Note: Preview the brand-new July 2012 Global Market Perspective now.)

We invite you to take a sneak peek into our unique, Elliott wave perspective on Europe's debt crisis. Check back soon for part II of this interview.

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Q: Hello, Brian. When we had our last conversation, you predicted the euro to be the weakest among all paper currencies. Did you have a crystal ball?

Brian Whitmer: Thanks for the kind words but, no, obviously not. I based that forecast on what we saw as a completed countertrend wave pattern in European stocks, while also observing that investors had previously moved out of euros and into dollars during every major stock decline since 2008. My forecast for a weak euro was no more complicated than that. Don't tell anyone.

Q: Brussels' political leadership wants Germany's government to foot the bill for all of Southern Europe. Does this plan have a future?

Whitmer: No, it doesn't, because the bear market will trample any plan anyway. But let's first set the stage a bit. Our primary forecasting tool is the Elliott Wave Principle, which says that financial markets ignore outside events and move according to waves of social mood. A corollary of the wave model is that even the most powerful governments are impotent against the market's trend. So, Europe's next plan -- whether it comes from Brussels, Berlin or elsewhere -- will have no future nor will it have any bearing on the market's direction.

Q: France and the southern member states are trying to force Germany to socialize debts by issuing Eurobonds in the future. What do you think about that?

Whitmer: I think the word "force" is the wrong term to use here. The Bundestag voted 496 to 90 in favor of Greece's second bailout, despite knowing that the overwhelming majority of German citizens opposed the rescue. No matter how oppressive the bailouts are for German taxpayers, Germany's politicians have gone along with every single rescue package to date. It's financially impossible for Germany to absorb all of Europe's bad debts, however. In the future, voters will remove politicians who try.

Q: Now that the problems with Europe's common currency are obvious, what's the best thing to do?

Whitmer: Before I answer that question, let's review what has been done so far. Since 2007, the Bank of England, the European Central Bank, the European Commission and the International Monetary Fund have together cut interest rates to near zero; they've created three massive bailout facilities; they've engineered five emergency rescue packages; they've embarked on six rounds of quantitative easing; they've held more than a dozen crisis summits; they've supplied insolvent governments with short-term funding through the ECB's discount window; and they've provided long-term loans through programs like LTRO. In that time, stock and bond markets in each of the recipient countries have continued to fall, and the Continent's overhanging debt remains more precarious than ever. Governments are not proactive, they're reactive. The best thing that monetary authorities could do right now would be to stop doing things. The sooner the better.

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Tags: Elliott Wave Principle, euro, europe, european central bank, European debt crisis, european markets, European Union (EU), eurozone

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