In our view, the European debt situation remains the most important variable affecting the global financial markets. Concerns over Europe’s debt situation have been outweighing the positives coming from robust earnings reports and better-than-expected economic data as investors remain concerned over the possibility of a financial meltdown that could trigger a significant global economic slowdown or recession. Despite the ongoing fears, we do believe that some progress is being made.

 

The changes in government that have occurred in Greece and Italy seem to be positive signs as new prime ministers Lucas Papademos and Mario Monti are well respected and widely regarded as technocrats who appear committed to solving their nations’ debt problems. The question, of course, is whether or not any solutions implemented throughout Europe will take place fast enough to prevent widespread contagion.

 

The super committee had dominated headlines of late, after having failed to produce a framework for identifying the needed US$1.2 trillion ($1.57 trillion) in deficit reduction that it was charged with. We had long suspected that the committee would pass on the toughest issues, but we had thought it was possible that the group would be able to identify cuts and savings of around US$400 billion to US$600 billion, coming up with a sort of half-victory. 

 

At present, with no deal rising, that would set the stage for an across-theboard automatic set of cuts that would commence in January 2013.