The managing director of foreign exchange strategy at UBS is of the opinion that the European Union will not be able to achieve prosperity in the region as growth rates are different for all European countries.
For countries to be able to keep the level of their debts stable to the size of their economies, nominal income growth in the Eurozone must match the yields paid on peripheral government bonds. This is highly unlikely as the Euro has been overvalued in recent years and with that the growth within the peripheral economies are hindered by the strong currency.
Growth rates are expected to remain low for these economies following deep recessions ever since the collapse of Lehmann Brothers in September 2008. This caused sharp rise in fiscal deficits and government debts to stave off depression and the very sluggish recoveries thereafter forced bond investors to wake up to the risks that these countries might not be able to sustain their heavy debt burdens indefinitely.
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