Debt is the biggest issue for Europe (Maurizio Giuliani)

Maurizio Giuliani, Founder and Strategist at M. Giuliani & Co. in the Torino region in Italy, has answered Cyceon’s questions on various topics of macroeconomic relevance. M. Giuliani & Co. is an investment advisory firm that provides financial advisory to a broad client. “We offer a better way to support our clients by providing uncompromised advice and world-class solutions that create lasting relationships. We founded M. Giuliani & Co. in 1994 to offer our clients a better way of investments, based on long-term client relationships and a focus on quality of advice rather than quantity of services offered,” said Mr. Giuliani.

1) The economic situation in the United States has much improved, yet Europe’s remains weak in comparison. To your mind, what are the main reasons behind this growing divergence?

M.G.: We believe that the difference in economic growth is given by the taxation and bureaucracy that are too much high, and a lack of cultural propensity to business.  However, this year, the economic climate in Europe is much better thanks to the dramatic decline of raw materials that will certainly help economic recovery much stronger than that of the United States.

2) The ECB will start a massive Quantitative Easing (QE) in March 2015 do you think it can trigger Europe’s economic turnaround?

M.G.: Not entirely; we believe that the main problem is the huge debt, both corporate and state. Price pressure in oil-importing countries has come down sharply; the global inflation is expected to fall by 0.5-0.8% this year. The drop in oil prices suggest that Eurozone headline inflation should stay below zero line until autumn. Greek demands for a debt overhaul are likely to meet strong resistance in Berlin: this will be the trigger event of 2015 for the Eurozone. Greece will be another client of Putin?

3) As an independent financial advisor, how would describe the pros and cons of the year 2015 to your customers and how would you primarily allocate your/their funds?

M.G. : The new deflationary wave will remove the rate hike, bringing the dollar to weaken, the US Treasury 10Y return will be under the 1.50% and the US stocks will find its bottom around 16.000 point of Dow Jones. But we suppose that the European stocks markets will be the most brilliant during 2015, in particular Germany and Italy. Within our asset allocation the German Bund will have a central role of capital protection against a credit event in the Eurozone. ECB 60bn bond buying per month will mean picking up a quarter of every German bond issue by September 2016: no wonder yields will be going down further. We will begin to evaluate investment in oil below $40 per barrel.

4) Italy’s Prime Minister Matteo Renzi benefits from a very positive reputation across Europe, especially in France and Spain. What are the most urgent issues Italy has to deal with? Is Italy in a better shape now that reforms have been undertaken?

M.G.: Italy is a medieval village, made up of feudal corporations. In my own opinion, I believe that only a violent credit event can somehow solve this situation; the heralded reforms of the Renzi’s government will have very little impact on the economic life of the country. Too big is the difference between the tax consumer and the tax producer. One of the solutions could be totally eliminate the income tax and keep that on consumption.

5) There is growing interaction between macroeconomics and geopolitics, what is your opinion about the current EU’s relations with Russia? Can Ukraine turn into an even more acute crisis, militarily and economically speaking?

M.G.: In our view the Ukraine crisis will intensify during 2015 and could project military intervention of NATO. This will be a factor of extreme volatility and geopolitical risk because it will involve Russia both militarily and economically. Will this event be the factor that will reverse the trend in the price of oil? Probably yes.