Industrial Europe is Happy with the Euro Crisis

The European Commission has “accused” Germany today of spreading false rumors about a possible bailout of Spain, after disturbing news published in two German papers that “EU prepares rescue for Spain”.

According with the Frankfurter Allgemeine Zeitung “The situation on the Spanish banking market is getting worse… the Spanish government asked EU Commission President Barroso and ECB President Trichet for assistance. A debt crisis in Spain would be more difficult to deal for the EU than in Greece.”

Why are the Germans interested in another crisis? I have a theory: Cheap Euro. Since the beginning of the Greece Crisis, now increased with the problems in Hungary, the Euro has dropped from $1.5 to $1.2. That makes products from the Euro zone 20% cheaper for US dollar purchases, and Germany is most industrial country of all.

European Central Bank

The Spanish banks are the most profitable in Europe and are considered to be the most efficient in the world. Last week Banco Santander purchased the remaining 25% share of its subsidiary in Mexico from Bank of America, and the BBVA has been purchasing medium regional banks in the US during the last three years. La Caixa is largest savings bank in Europe and its industrial arm has important holdings in the main European utilities markets.

The Spanish government may need the money, not the banks… but some people are just looking to keep the Euro low… for many reasons.

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The Gateway to South America: Chile

During the last year I’ve been involved in developing the international market for a Danish manufacturer of high-end industrial mixers. As part of my efforts, I’ve been trying to find suitable partners in different regions, especially in South America.

Why is the South American market important? Both the US and Europe are still feeling the effects of the biggest recession in the last 80 years. After the huge “bailouts” of banks and companies “too big to fail” and the impossible task of reducing government deficits, the northern hemisphere western economies are going to grow slowly in the next few years. Government spending will have to be cut drastically in order to address the deficit – and will impact the investment in infrastructure and other government funding.

The good thing about South American countries, and I’m talking about Chile, Argentina, Brazil, Uruguay and Paraguay, is they had their bad recessions a few years ago and their economies have been growing steadily in the last few years.

The biggest individual economies in South America are those of Brazil, Argentina, Colombia and Chile. Venezuela has great potential, but government intervention, lack of free currency exchange, and very strict import regulations make it difficult to trade with them.

Brazil is the largest market in the region, second only to the US in the Americas, with a GDP of $1.3 trillion dollars. Argentina, Colombia and Chile have GDPs of $585, $400 and $163 billion dollars, respectively.  However, in GDP per capita, Chile has the highest in the region.

Brazil has a unique approach to protect its manufacturing market, using high import taxes and imposing additional corporate taxes on currency payments. Basically their idea is to encourage large corporations to manufacture in Brazil. They have been quite successful in attracting big names such as Enercon (wind turbines), Dell Computers,  VW, etc. Another reason is that Brazil collects taxes on payments to foreign companies (US and EU companies can claim the money back in their countries), which makes it more interesting to leave the money there and invest.

For me, the most interesting country to start working in South America is Chile. It is the smallest market – but also the healthiest one. It is also the most “European” country in Latin America. Their economy is very stable, thanks to their copper industry, and it’s the ONLY Latin America country that is a member of the OECD. Some people believe that the culture and economic success of Chile is due to their Basque background. Miguel de Unamuno used to say “The Company of Jesus and the Republic of Chile are the two great achievements of the Basque people.”  I have to say that my experience with Chilean people is the best I have had in South America.

Other reasons to engage with Chile are their associate status with the Mercosur, a very stable currency (it has remained stable even after the powerful earthquake of last February), and their high investment in R&D. Chile is also the country with the highest level of education in the area.

There are significant reasons to invest in the South American market. All economic indicators are pointing in that direction, and others are moving fast…and Chile is the place to start!

Doing retail business in Europe

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