Assetz® News - Europe's turn?

Europe's turn?

27th November 2008 |

The dramatic last few months in the sphere of economics and property has blown away all manner of perceptions and assumptions. Few could have imagined that UK interest rates would have tumbled in the way they have. Few could have envisaged a financial crisis so deep that Lehman Brothers - a blue chip investment bank that had survived the 1929 crash and everything else that happened over its 158-year history - would fold. Minds would have boggled at the figures being quoted for the cost of government interventions to save the banks and help mortgage borrowing.

Nonetheless, all this has happened and for those still keen to invest in property - seeing the chance to buy bargains ahead of the economic recovery - the actions of ministers and central banks will be of particular interest, not least for those keen to see mortgage finance become more freely available.

While the Crosby report in Britain has outlined ways the UK may do this and the US Federal Reserve has announced a $600 billion (£390 billion) move to buy up direct obligations and mortgage-backed securities from Fannie Mae and Freddie Mac, Europe has come up with its own proposals.

Those keen on investing in Eurozone countries such as Germany, France or Cyprus may be interested to learn that the European commission has proposed a €200 billion (£167 billion) stimulus package, which amounts to the equivalent of 1.5 pert cent of gross domestic product across the 27 member states. Most would come from member states' own government revenues and borrowing.

At this point, nothing has been decided and it may be that some countries will wish to do less in terms of their overall economic stimulus for fear of their public debt levels. But the fact that such a proposition is on the table may indicate that a plan of some sort is on the way - one which could involve some direct intervention to produce more liquidity for the mortgage market, or at least produce an economic boost that will see economies pick up sooner. Either way, measures of this sort could achieve the same intended aim as in Britain - making the recession shallower and the recovery sooner, all of which will be good news for investors in property.

Each country will of course be in a different situation regarding how much it needs to do. Germany, now officially in recession, has been described by the Organisation for Economic Co-operation and Development (OECD) as a country where any stimulus package should be "well targeted, timely and temporary". Both it and France are seen as nations where growth will return in 2010, but the OECD believes the latter is likely to see "above potential" economic expansion that year. Therefore their prospects may turn out be at variance with each other.

What action Europe takes waits to be seen and the effects on different economies may vary. But what does seem clear is that we are now in an age of drastic intervention. In such circumstances, those keen on investing in property overseas may do well to keep a close eye on exactly how things develop in a fast-changing situation.