The long road to recovery

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22 Aug 2014

Greece’s successful first bond auction in four years, Ireland’s improved debt ranking and Portugal becoming the second eurozone state to exit its international financial bailout, all breathed life back into Europe’s peripheral economies earlier this year. But, more care and time is required before the region is back to full health.

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Greece’s successful first bond auction in four years, Ireland’s improved debt ranking and Portugal becoming the second eurozone state to exit its international financial bailout, all breathed life back into Europe’s peripheral economies earlier this year. But, more care and time is required before the region is back to full health.

Greece’s successful first bond auction in four years, Ireland’s improved debt ranking and Portugal becoming the second eurozone state to exit its international financial bailout, all breathed life back into Europe’s peripheral economies earlier this year. But, more care and time is required before the region is back to full health.

“We are not in those dark days and the immediate catalyst was the Draghi ‘whatever it takes’ speech. We have seen reforms in a number of countries, but that’s not to say the dangers have disappeared.”

Simon Hawkins

The last five years has been something of a helter-skelter for the European periphery. And not just in terms of a dizzying descent to the bottom of ride you have no control over, but with all the blood and terror of a journey with Charles Manson and The Family.

It’s been a frightening time with sovereign powers teetering on the edge of default, and one which has left institutional investors scratching their heads as to how to find the yield they need to meet their commitments.

That time, however, is past, says Simon Hawkins, senior portfolio manager at Conning Asset Management.

“We are not in those dark days and the immediate catalyst was the Draghi ‘whatever it takes’ speech. We have seen some reforms in a number of countries, but that’s not to say the dangers have disappeared, as that would be taking it too far.”

Myles Bradshaw, a portfolio manager at Pimco compares Europe’s periphery to someone seriously ill. Now, the patient has moved from the acute phase of the crisis to the chronic phase.

“Now out of the emergency room, the patient is not just stuck in a hospital bed, but is up and about. However, it knows it needs to change its lifestyle and habits for a better future prognosis.”

As suggested, the reason for this patient’s miraculous recovery has been due to ministrations of the European Central Bank (ECB). Its actions, galvanised by the words of its leader, Mario Draghi, were what set not only the periphery, but arguably the whole eurozone on the road to recovery. The ECB was willing to support sovereign markets, particularly those economies big enough to make a difference (or cause a serious dent) in the EU.

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