Chartwell & Editorial Intelligence

Chartwell was delighted to spend the morning at a really excellent event organised by our good friends over at Editorial Intelligence (http://www.editorialintelligence.com/).

We joined Ambassador Louis Susman (United States Ambassador to the Court of St James’s), Guy Elliott (CFO, Rio Tinto), Loretta Napoleoni (economist and author) and Martin Wolf (Chief Economic Commentator, Financial Times) at the Financial Times’ Southark Bridge headquarters for a really fascinating discussion of “2012 ‘Pre-Davos’ Predictions”.

There was far to much juicy material to mention here, but a couple of points particularly appealed to this attendee:

1) Napoleoni argued that if there was a meltdown in the Eurozone, a Greek default would not be the trigger. For her this risk has already been priced into the markets. The real danger stems from Italy, because the markets do not fully comprehend its vulnerability. Yet vulnerable it is: the economy hasn’t grown in 10 years, there is a huge liquidity crisis and a real chance of social unrest as the austerity measure kick in. Crucially, what is generally not realised is that the Monti government is being held ransom by the Berlusconi coalition. This will prevent it from imposing measures, such as a 5% wealth tax, which would significantly help balance Italy’s books. An italian default is therefore more likely than many people think, and the failure to grasp this means that such an event would cause greater shocks in the market than with Greece.

2) For Martin Wolf, the anomaly of Western global economic dominance is coming to an end. From 2007-2012, emerging Asia will expand in real terms by 50%. The figure for developed nations is a paltry 3%. Moreover, the West only contains 12% of the world’s poppulation (and this is declining), and it is simply inconceivable that such a small segment of humanity can continue to dominate the global economy.

3) For all the downside risks over the next years (eurozone collapse, oil shock as a result of Middle Eastern political turmoil, inflation in the medium term due to central bank mopnetary easing etc.) we should not lose sight of the things that could go right. Martin pointed out that, even though the eurozone currently has no credible plan to deal with the crisis, the ECB under Draghi will do whatever it takes to make the monetary union work. Also, Germany knows it will face 10 years of pain if the eurozone collapses, so will put all its political weight behind finding a solution. Maybe, just maybe, this will be enough for the eurozone to muddle through.

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