Given the problems in Europe, investment experts at Allianz Global Investors have a dismal view of the global capital markets.
“We expect financial repression and negative real yields to continue for three to five years,” Andreas Uterman, global chief investment officer of Allianz Global Investors, said at a press briefing Tuesday. “We won't see a normalization of capital markets for many years.”
The biggest reason is, of course, the uncertain future of the European Union. Mr. Uterman wasn't expecting much from the meeting between EU members in Brussels at the end of the week.
“The summit can only disappoint, because the markets want a quick fix,” he said.
The problem is at its core a communication challenge, Mr. Uterman suggested. “The EU and the (International Monetary Fund) need to convince (European) taxpayers that they should bear the burden they're being asked to. Policymakers are failing to give people a light at the end of the tunnel,” he said.
Beyond educating the public on the rationale for the European Union, Mr. Uterman said three things need to happen to resolve the crisis: the creation of a banking resolution system with the whole union underwriting the solution, the European Central Bank's being officially made the lender of last resort with the power to buy government bonds in the open market, as the Federal Reserve Bank does in the U.S., and a joint underwriting of the excess debt of EU members.
The cost of such a resolution would be lower for peripheral countries and higher for Germany, the Netherlands and other higher-rated countries. So far, Germany has resisted the idea of eurobonds and bills, as well as a more active European central bank.