Jeremy Siegel: Lower Euro is the Last Best Hope

By on July 30, 2012

Bloomberg’s Betty Liu interviewed professor of finance at the University of Pennsylvania’s Wharton School and financial author Jeremy Siegel regarding the European crisis which has been weighing on stocks.

Siegel said one of the biggest problems in Europe has been a worry about the banks – the solvency of the banks and in particular that there would be a banking crisis – that you would see depositors standing outside Santander, or one of those major Spanish banks saying I want my money out. They have to be able to provide enough liquidity to satisfy the depositors so there is no general run on the banks, Siegel explained.

Outside of that there is a huge structural problem in Europe; the peripheral countries wages are just too high. They’ve adjusted down somewhat in Greece, Siegel said.

Siegel stated he’s encouraged by the drop in the Euro. About a month ago he said they should get the Euro down to parity with the dollar. It’s been brought down about halfway. Siegel believes a lower Euro is the last best hope that Europe has to save the Euro structure.

When asked by Liu what the ECB should do, Siegel responded that as long as they can prevent a general banking crisis, the next priority is bringing the Euro down. There’s no question the deficits are going to continue in these countries and these problems aren’t going to be solved until you get some economic growth, he added.

Siegel explained if the Euro is brought down low you might have enough people say “I want to take that vacation in Spain or Greece or the olive oil they’re selling is competitive in the world markets.”

You get that boost from exports and it will change the complexion of the markets, Siegel concluded.

Back in February, Siegel was expecting a Dow of 15,000 by the end of 2013 based on valuation (link).

One Comment

  1. Haim

    July 30, 2012 at 3:06 pm

    Siegel is a true optomist. The adjustment in wages is a very long-term process with major upheavals between now and then. Currency devaluation is no cure for problems.

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