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Sunday, 02 October 2016 23:20

European Refugee Crisis - last straw for the EU?

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Germany has taken in 1 million refugees in the last 12 months, and there are plenty of signs that the refugee crisis is taking its toll on social harmony in Europe.

A couple of months ago we spoke with Clay Smolinski on how the European refugee crisis is impacting investment decisions.

 

Here is a transcript of the video for those who prefer to read the interview.

 

Mark Draper: Here with Clay Smolinski from Platinum Asset Management and the Europeans have been through a lot really in the last decade and they’ve got plenty of coming up.

One of them has to do with the refugee crisis  there. So we just want to spend a couple of minutes looking at the investment aspects of the European refugee crisis. Can you just take us through your thinking on that?

Clay Smolinski: Yeah, absolutely. So the refugee crisis for me, the issue is – the risk of it is that it’s another challenge that the political will of the European Union needs to face.

For me the crisis alone probably wouldn’t be a huge deal for the union but the issue is that it comes on top of a lot of the problems, those individual – the union of countries has had to face over the last few years.

So we think about the union. Through the sovereign crisis, they got through the major battle, which was the economic battle needing to cut the budget deficits, needing to where – you know, that higher unemployment that that caused. From the economic perspective, we can fairly definitively point that that battle has been won. The economy is now recovering but that has left that political will far weaker.

Since then we’ve seen that in subsequent elections, more radical left or right wing parties have been voted in. Examples of this would be Podemos in Spain or Syriza in Greece. We now have major members like the UK going to referendum on deciding whether it’s an exit or not and now we have the refugee crisis and immigration is always a very politically-charged issue and it’s clear that the member countries have differed in their views on how to exit, on how to handle it. That just creates – it’s another issue. It’s another reason for people to get upset, the voting populous and maybe vote for an exit.

What is interesting for us as well and is a bit of mitigant to that is how Germany is – has behaved through this and certainly through the sovereign crisis, the response to that crisis was very much dictated by Germany and that has forced a lot of the other member countries to go through a lot of pain.

Now with the refugee crisis, they’ve really stepped to the fore and said, “We’re going to do more than our fair share to handle this. We’re going to take a lot of these people on to our soil. We’re going to provide additional funding to the others to work through this,” and I think it’s their way of standing up and saying, “Look, we know you’ve done your part and now it’s our time to really give back and to show solidarity in the union.”

Mark Draper: So a major risk here would seem political for that in terms of the uprising of hard left or hard right – well, probably hard right in this situation.

Clay Smolinski: It’s very hard to factor that back into a definitive investment decision but it’s certainly something that we need to keep in mind and often when you compare the European market to the US market, the European market does trade at a valuation discount. But I think at least some of that discount is warranted given the – I guess the more uncertain political outlook for that region.

Mark Draper: So be alert, but not alarmed at the moment. It’s a work in progress.

Clay Smolinski: That’s how we’re viewing it.

Mark Draper: Thanks for your time Clay.

Clay Smolinski: You’re welcome.

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