European Economies Buzzing – for Now

Since March 7, I’ve visited five European cities on this trip. And without a doubt, Europe is enjoying its best economic performance since 1999. Everywhere I’ve visited, the boom times are back.

Yesterday, I flew from Copenhagen to Stockholm. Today, I’m in Zurich, my favorite European capital. Throughout my ten-day stint, the weather across Europe, even in Scandinavia, was unseasonably warm. It’s hard to believe you barely need a coat in Copenhagen or Stockholm this time of the year!

My Euro-tour began in Vienna.  Austria is logging very strong economic numbers over the last few years with low unemployment, strong corporate earnings and an ever increasing export base to Eastern and Central Europe. Over the last five years, Austria has ranked as one of the best-performing industrialized Euro-zone economies because of its close historical trading ties to countries like Hungary, Poland, the Czech Republic and the Balkans. The former Soviet satellites are among the fastest-growing emerging European economies since the late 1990s and Austria sits right in the middle of this exciting growth path. Until recently, Austria was the best-performing major market European bourse, more than doubling since 2003.

Next was Rome. Admittedly, I was not here for business. But I did my share to boost the Italian economy, courtesy of the fine shopping on the Via Venetta in Rome, not to mention the extra pound or two I tacked-on from over-indulging on Chianti. But Rome, of course, is littered with deep history. I spent most of my weekend visiting the Coliseum, The Forum and Vatican City – simply architectural wonders.

From an economic perspective, Italy is a mixed-bag. The country’s politics remain highly fragmented and therefore, there’s barely a consensus on domestic economic policy. The country continues to run a bloated debt-to-GDP ratio and manufacturing is hurting because of a strong euro, hampering exports. Italian banking, however, is still a great speculation because it remains one of the last countries in the original euro-zone to unshackle its redundant number of banks. Also, the country’s largest bank is back in the “buy” zone again this month amid a severe global sell-off, offering a terrific entry price for new investors because of its profitable cross-border push into Eastern and Central European financial services.

Then I hit Copenhagen, another fantastic small economy with historical trading ties to the world, courtesy of its vast harbors. Here I spent some time with Jyske Bank, the country’s second-largest bank.   

While in Denmark, bankers admitted that unemployment is virtually zero while the small trading enclave enjoys its best economic performance since the 1960s. Indeed, Denmark is a great sea-faring nation, home to Maersk A/S, the world’s largest shipping container company. But like most European markets, the Danish real estate market is now softening over the last six months after an enormous run since 2000. I’d be reluctant to buy Danish real estate at these prices and instead would concentrate on the country’s highly successful windmill industry as the race for cleaner-burning energy drives big dollars to this market.

Switzerland is also basking in low unemployment and a booming economy. Real estate prices have recovered off the 2002 lows and now sell at or near their all-time highs.  Switzerland has always been expensive, and that’s absolutely true today. Hotel rates are up more than 100% at the best properties since 2002, indicative of a tourist boom and buoyant business conditions. But like all bourses across Europe, the market is not cheap at this point with only small pockets of value still available in financial services. In addition to some financial shares, the Swiss franc remains very cheap versus the mighty euro.


Europe is coming back strong in 2007. Interest rates remain at historically low levels, bank credit is growing in the high single or low double-digits and inflation is benign. With the continued integration of Eastern Europe into the European Union and the euro-zone, I’d use any intermittent price weakness to add to my existing positions. In fact, I prefer Old Europe to New Europe over the next few years because debt levels are now at all-time highs in many peripheral emerging European markets. Growth rates might be far superior in East and Central Europe, but deficits are running high and some sort of financial crisis or monetary squeeze lies ahead.

Some of the best bargains now amid this severe global correction are European banks, now near their 52-week lows and yielding more than benchmark euro-zone government bonds. That’s especially the case in the United Kingdom and several other markets across the region. Also, the European large-cap oil companies are cheap, and yielding big dividends following steep price declines since last fall.

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