We have previously blogged about the advantages of being optimistic about the U.S. economy for the rest of this year and into 2013. It seems doubtful that all will embrace this optimism for the U.S. until we reduce fears about Europe. A few of us had the pleasure of spending last week in Brussels, and the mood of those gathered from around Europe was decidedly sour. They are unwilling to believe anything but the worst about the near-term prospects for the European economy. Talented, educated workers are fleeing Greece, and investors are staring at Spanish banks afraid to blink lest they miss the first crack in a presumed collapse.
There are numerous factors in support of a flat to mild recovery trend in Europe beginning late this year and extending through 2013. The optimism can be summarized as follows:
The growing recognition of the need for an EU Bank with deposit guarantees (think FDIC here in America).
The increasing recognition for a tighter fiscal union.
The dependence of the world on the EU consumer base.
The ECB, the EFSM, and the IMF all recognize the need for liquidity in the European bond market and in banks.
A growing potential for ECB lending directly to troubled banks. This would keep the sovereign debt issues separate from the bank problems, in turn keeping sovereign borrowing costs lower.
We should also note that despite their fear and trepidation about the future, most of the people we talked to were realizing year-over-year gains. The constant pounding in the press tells them the world is ending, but the reality is that they are turning a profit.