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Big rescue package for Europe
Tue, 11 May Pre-Open

In late 2008 a plethora of stimulus packages were doled out by governments across the world. The reason? To tide over the global financial crisis. And what's more, another one was announced just yesterday. This was by the European policymakers to prevent the collapse of Greece and the aftershocks thereon. As reported on Bloomberg, European policymakers unveiled a gargantuan loan package worth US$ 1 trillion. Coupled with this is a program of bond purchases to stop the sovereign debt crisis that has threatened to shatter confidence in the euro. The 16 Euro nations have agreed to offer as much as 750 bn euros to countries facing instability. This includes International Monetary Fund backing. Moreover, the European Central Bank stated its intention of buying government and private debt.

Stockmarkets around the world were jittery last week. Concerns emanated that the sovereign debt crisis would spiral out of control. This would then worsen the dynamics of the global economy. Especially when the latter had already been hammered due to the ill effects of the subprime crisis. Although a 110 bn euro package was announced for Greece initially, this did not do much to douse investor concerns. The credibility of the Euro was now questioned. This then prompted European policymakers to go in for another massive attempt to boost the beleaguered European currency. For the time being atleast, these policymakers have averted a catastrophe in the financial markets. But the long term outlook for the European economy looks bleak.

Interestingly, it was not too long ago that the dollar's status as the world's reserve currency was questioned. This was because the global financial crisis hit US hard and pushed unemployment to unprecedented levels. The Euro was put forward as a likely candidate. But the debt crisis in Europe only goes to show that the Euro has a long way to go before it can topple the US dollar. True, the US economy has not been doing great shakes. But the way the scenario is panning out in Europe, it faces no competition anytime soon.

For investors in India, the European debt crisis should not be looked upon with too much alarm. What it could do is lure FIIs to pull money from the Indian stockmarkets to cut losses elsewhere. And so this would provide a perfect opportunity to long term investors. How? They can then buy some good quality stocks at bargain prices.

The Indian economy is expected to perform strongly in the years ahead. Of course, there are still various challenges that the country faces particularly on the infrastructure and fiscal deficit front. But the growth prospects here are certainly much more compelling than what is being observed in the rich world. And therefore, even if there is near term volatility in the stockmarkets, staying invested for the long term in strong companies is sure to deliver healthy returns to shareholders.

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Feb 19, 2018 (Close)