Europe will enter a recession in 2012 but signs of improvement will emerge in the second quarter of the calendar year, UBS’ strategy chief said yesterday.
“The official UBS view is, they’re going to make up, not break up,” UBS head of investment strategy and consulting George Boubouras said.
He said Europe would move towards fiscal union, in line with a push by Germany and France.
“Unfortunately, a fiscal union timeframe, from the legality point of view, is between March and June next year,” he said.
“That cannot appease markets; it’s going to do the opposite to markets. Therefore markets, again, will be volatile.”
Fiscal union would obligate the 17 nations that make up the euro to agree to balance their budgets, unify tax collection and spending and abide by other aspects of the proposed European Stability Mechanism treaty.
Of the 27 nations that make up the European Council, only the United Kingdom rejected the treaty, which is set to be signed in March at the latest.
Boubouras said the appointments of Greek Prime Minister Lucas Papademos and Italian Prime Minister Mario Monti, both of whom he called technocrats, formed a clear sign that fiscal union was a primary goal in Europe.
“When Europe can show some clear signs of this fiscal union progress, then we can start to see other policies roll out that can potentially lead to an era of robust European economic and productivity gains,” he said.
He said the second stage of economic progress in Europe involved coordinated central bank intervention, followed by continued interest rate cuts by the European Central Bank.
However, the cure-all would be a program similar to the US troubled asset relief program (TARP), which gave the US Treasury the power to buy up to US$700 billion in mortgage-backed securities.
“The silver bullet – which hasn’t been done yet – which will solve all the problems is the following: unlimited bond-buying program. That’s what they did in the US in late 2008. They haven’t started that. When you say unlimited, it means unlimited — they’ll buy anything on the street. They haven’t done that yet.”
