The View of the (Fiscal) Cliff from Europe

The so-called “fiscal cliff” has been dominating news headlines in the US for weeks.

Across the pond, Europeans have been paying close attention and having similar, just as heated, debates about spending and taxes.

The World’s Marco Werman gets the latest European view from London-based financial analyst Louise Cooper.

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Marco Werman: I’m Marco Werman, this is The World. You are probably heart broken that you woke up on New Year’s Day today to find those two words still ringing in your ears, not to mention the weeks of wrangling on Capital Hill over government spending and taxes. Across the pond, Europeans have been paying close attention and having similar debates just as heated as here. Joining me now from London to talk about the Euro view of this fiscal cliff is Louise Cooper. She’s a financial analyst at the Consultancy Cooper City. How has this fiscal cliff debate come across to you all in Europe, Louise? Does it seem as ominous as it’s been made out to be here?

Louise Cooper: It seems extraordinary that the two sides cannot do what’s best for America and not compromise. Having said that, that’s exactly what we’re seeing in Europe to be brutally frank. Politicians failing to come to an agreement over the fiscal mess that we’re all facing.

Werman: Louise, you suggest in your blog today that there’s some hypocrisy coming from Washington. Explain that.

Cooper: I do find it quite entertaining that there’s been a lot of very critical comment coming from America about Eurozone politicians kicking the can down the road, and yet the US fiscal cliff is exactly that. It was created in August 2011 because Congress couldn’t decide what to do about the debt ceiling. I think what we’re seeing across the world is politicians having great difficulties dealing with their debt crises, essentially because they could deal with their debt crises, but they’re very unlikely to get reelected once they’ve done what needs to be done.

Werman: So the politicians who keep running with this fiscal cliff notion, I mean it feels like the world’s facing, at least the United States, is facing financial armageddon, but why does the Dow Jones keep going up?

Cooper: First of all, I think investors and traders can’t quite believe that American parliamentarians would be so stupid as to take the US economy into a recession again. I think there’s just like no, they’re not gonna do it, they’re not that stupid, they’re really not gonna do this. And therefore, I think to a certain extent, you know, the traders and the investors are kind of ignoring the day-to-day news and going we’ll get there eventually, which is kind of what happened here in Europe actually.

Werman: Yeah, I was gonna ask you did the same thing happen there during

Cooper: Yeah, we just got so bored of reading you know, this person says this, this person says this, this person this–you know, well you’re gonna, you’re gonna do something eventually, let’s just ignore them because they’re gonna do something eventually. So that’s the first thing that’s going on. But I think the second thing that’s going on, the second thing is because the actions of the Federal Reserve, the Central Bank, respectively printing money and bringing down the interest rate on American government debt, the yield on US treasuries, those actions force investors into equities, into the stock market, into corporate bonds. So we’ll almost see that the stock market is insulated from political incompetence because of the actions of the federal reserve. Now, in some ways that’s a good thing because stock markets aren’t falling, corporate bonds aren’t falling, etc., but in another way it does mean that there’s not this financial market pressure on Washington to do a deal.

Werman: So here we are on New Year’s Day, Louise, looking forward to 2013, economically for Europe and the US, looking hopeful to you?

Cooper: Yeah, and I’ve got some of my ‘ands on my head, you know,

Werman: That’s not a good sign.

Cooper: trying to be optimistic. Very difficult times. 2012 wasn’t a bad year for financial markets given the news flow we’ve had. And I think a lot of that is because the Central bankers around the world–Mario Draghi of the European Central Bank, Mervyn King at the Bank of England, Bernanke at the Fed–the politicians are slowly coming to grips with this crisis, but it’s thanks to the Central Bankers that the world is not looking a much more ugly pace than it really could have been.

Werman: Louise Cooper, a financial analyst at the Consultancy Cooper City, thank you for your time and Happy New Years.

Cooper: Happy new Year to you. Let’s hope 2013 is a bit better, although I’m not hugely optimistic.

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