I recently attend the Business and Wealth Management Forum in Chicago. One of the speakers spoke about the current situation in Europe. I found his comments of particular interest because oftentimes, clients want to discuss whether or not to have investments in Europe.
By way of background, each European bank has its own system whereas the United States is a single system. Regularly, European countries use their banks as tools for policy. For example, Madrid forced Spanish banks to treat one million naturalized citizens a superb credit risks for purposes of lending – even though they had no credit history. I leave the results to your imagination.
Companies, on the other hand, have issues with labor unions. Many are now using the current economic situation to reach a more realistic relationship with labor to help streamline the business. The speaker gave the example of Belgium companies having to pay salary for five years for workers laid off!
By streamlining their cost structure, European companies become more competative in the world.
So next time you consider your international allocation, don’t confuse the country situation with the potential quality of companies within the country.