France and Germany have been the motor of the European construction and they shared most of the economic burden to support the Southern and Eastern Europe since the 1980s. But we think they will not be able to go on much more subsidizing Southern Europe, which will lead to a big fracture inside the Eurozone. The reason is that France’s economy itself seems to be going nowhere. This week’s official figures are showing, again, a recession with a 0.2% contraction of the French GDP (see Bloomberg article HERE). At the same time the French unemployment is growing to a staggering 10.6%. With regards to public national debt, the evolution has been similar: France’s national public debt was 64% of the national GDP in 2006 but it reached a staggering 90.2% in march 2013 according to the Insee, French National Institute of Statistics and Economic Studies (see link HERE). Another interesting indicator to look at is the French National Index CAC40, and this index is 28% lower in May 2013 than it was in January 2000. So we are talking about deeply negative returns over a 13-year period, which is a complete disaster from an investor standpoint, as you can see below in the graph below (click on the graph to be redirected to CAC40 page on Yahoo finance).
We are now reaching a tipping point. France has so many problems of its own to solve that it cannot afford much longer to keep its leading role in the EU. Germany remains a motor and a big lender but it cannot bear alone the burden to support economically the failing southern Europe and most of the smaller European economies have neither the will nor the critical mass that is required to provide this support. The last major European economy is the UK, but it will not help as the Brits are actually trying to leave the European Union! The Conservatives which are the ruling political majority presented two days ago the terms of a referendum to be held within a couple of years to ratify UK leaving the EU (see full story HERE).
So beware of the Eurozone, they are running into many years of trouble and nobody can tell today how this chaos is going to end.
Nonetheless not all is dark and bleak in Europe. Some smaller countries with the coldest climates of the continent have managed not only to stay away from this EU chaos but to position themselves extremely well in world economic rankings so they are thriving economically and can very well be regarded as very attracting for long-term investors:
- Norway is an oil-producing country and does not belong to the political European union. The public debt is as low as can be and according to the World Bank the country’s GDP per capita ranks 3rd in the World , preceded only by the micro-states of Luxemburg and Monaco (see world bank data HERE). Unemployment in Norway is below 3%, so to say it is existent (see article source from Bloomberg HERE).
- Sweden and Denmark are prosperous nations that benefit from regular investments from their Norwegians neighbors with whom they share the same basic Scandinavian language. Moreover neither Sweden nor Denmark are part of the Eurozone so they are not much affected but the Euro turmoil. Last but not least both the government in those countries have balanced budget with a low public debt (45% of GDP for Denmark, 38% of GDP for Sweden).
- Switzerland is a very prosperous country, mostly thanks to the vitality of its financial industry but also thanks to the fact that despite its small size Swtzerland has managed to nurture industrial champions which are global leaders in their sectors and delivered stable growth during the pas decades. We are thinking of firms such as Nestlé, ABB, Roche and Novartis.
The conclusion is that the current outlook for Eurozone is bleak right now, and it is not going to be any better in the years to come, but the cold, or rather cool, countries of Norway, Sweden, Denmark and Switzerland remain very interesting for an investor. We therefore advise you to invest in Exchange Traded Funds (ETFs) to get exposure to these specific countries. Below is a list of funds that can be traded from the US markets and that will do the job: