Wall Street Journal
July 16, 2011
The financial pages now have a 1940s quality to them: Most of the headlines are coming out of Europe. But despite all the negative economic news, things might not be quite as bad as they seem.
Rolling fiscal crises have rocked Europe sporadically since early 2010. Greece, Ireland and Portugal have required rescuing. Greece is up for a second bailout, and Portugal and Ireland aren't far behind. All but a cloistered few believe Greece will soon default on its debt, which could add another, nastier leg to the euro-zone fiscal woes.
For all the sturm, however, Ireland, Portugal and Greece are economic minnows. As long as the euro-zone crises remained contained within this trio, the eurocrats could fumble their way toward some solution.
Alas, in the past week, Italy, a nonminnow, emerged as a fresh euro-zone problem spot. Italy has the euro zone's second-highest debt load at 119% of gross domestic product, according to investment bank Jefferies & Co. (Greece leads the pack with total debt at 142% of gross domestic product.) Its banking sector is heavily exposed to Italian sovereign debt, and the political situation seems messier than usual. Prime Minister Silvio Berlusconi and his economy minister, Giulio Tremonti, are squabbling even as the government tries to pass tough new austerity measures.
Europe looks like a mess. But sometimes the headlines scream louder than reality. Taking a closer look at the euro-zone situation, investors might find some opportunity.
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