The opportunities offered by the Eurozone’s $8 trillion pensions funding gap and the potential for profits, even in a riskier environment, have already triggered an estimated $450bn shift in institutional investment portfolios and encouraged a boom in corporate mergers and take-overs, with more on the way according to a new report by Datamonitor for Reuters.
The economic conditions for monetary union include drastically lower state debt than in the past and that means fewer Triple A government bond issues in a bloc whose combined bond markets are worth some $6.6 trillion, second only to the USA. Municipal and corporate bond markets more akin to the USA are in the process of emerging, with investors’ accustomising themselves to lower credit ratings and greater risk.
The creation of the euro has provided a stimulus to an already accelerating trend of take-overs, mergers and other corporate deals, as industrialists seek to create combines able to hold their own on a global commercial stage. Mergers and acquisitions within the Eurozone had been growing at 25 p.c. a year in the five years before EMU to reach $370bn according to the report.
More risk will be assumed as an ‘equity culture’ grows on the back of the pensions’ revolution. Most Eurozone state pensions schemes are unfunded, with implied liabilities far in excess of the foreseeable tax revenues, as people live longer. To move to funded systems, more money will have to be invested in savings and investment institutions investing for the long term, and that means more investment in stock markets relative to bonds and bank deposits. |
