Greece Is Not the Only EuroZone Problem

02/20/2015 12:01 am EST


Jim Jubak

Founder and Editor,

MoneyShow's Jim Jubak suggests that for the coming week you look past the Greek debt crisis as there are several more important issues in the EuroZone that need to be addressed.

For the week ahead, let's try to look past the Greek debt crisis, will Greece exit the euro rigmarole, because while that's as fascinating as watching, like, a car wreck in the median strip of I-95, it's not really as important as the other stuff going on around the euro.

If you remember, before all of our attention got soaked into this, the European Central Bank announced that it was going to begin a program of quantitative easing. That's still scheduled to kick in and we're talking about a trillion euros' worth of asset purchases.

Now, what's going on is that's obviously targeted to the European economy. They want to drive down the price of the euro, which would encourage exports, which would drive up growth higher, lower interest rates, which would drive growth, and maybe get some inflation because imports would be more expensive in euro terms, get inflation growing because the EuroZone is very close to deflation. All of those things are what is, sort of, the internal focus.

What's interesting to me, I think what's more important, is what this plan is doing to the reset of the global economy. If you look at the most recent minutes from the Fed—released on February 18 for the end of the January meeting of the Federal Open Market Committee—the Fed basically is looking at this and going, “okay, Europe is slowing, we're not sure this is going to work, there's a lot turmoil there, and people are not reading very deeply between the lines because it was really pretty much out in the open.” The Fed's saying, basically, “well, you know, until we see that this is working, we're really going to be very, very reluctant to raise US interest rates because we don't want to slow the US economy if there's nothing else going on elsewhere in the world to add some more growth to the global economy and to US.

Closer to home, what we're seeing is a series of interest rate cuts from countries on the periphery of the EuroZone; Poland and all of the Nordic countries, Sweden, Norway, and Denmark, all have cut interest rates and you should look at this and go, “well, why?” It's a reaction. It's a pre-emptive action, if you will, to the proposed big asset purchases that, if you have a currency—and Poland is a member of the EuroZone but it doesn't use the euro yet, Norway doesn't use the euro either—you're looking at a country that has a currency that has to compete with the euro and, if the euro is being driven down in price, you've got a real problem if you're Poland, for example, and trying to export to the rest of Europe because your goods just got more expensive.

What you're seeing is Poland go and say, “okay, we're going to cut our interest rates to try to drive down the value of zloty” and what that will do is keep growth strong. The same thing going on in Norway, same thing going on in Sweden, same thing going on in Denmark. All of these countries trying to make sure that when the EuroZone does its action, their economies don't suffer and, so, what you're seeing is lower interest rates in those countries, sometimes very negative interest rates. It makes those countries really kind of interesting.

If you've got a slightly longer ranged perspective with this, if you look and say Norway, which is mostly an export country, it's got to be since it only has about ten million people, oil recovery there would be highly, highly leveraged to the upside.

Export industries in Norway, or in Sweden, or in Finland and Denmark, would benefit if indeed there is an economic recovery so all of these things actually make what's going on in the EuroZone more interesting to an investor when you look at slightly outside the EuroZone.

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