Europe is offering a hand of support even though some countries are not satisfied with the role it is playing
When things get tough, you find out who your real friends are and where your own sympathies really lie. Following the attacks on the World Trade Center, the UK quickly lined up beside the US for an anti-terror war. Prime Minister Tony Blair made it difficult for any dissent from Continental Europe by declaring the attacks an assault on the Western world.
European governments did offer political backing, and more importantly, real intelligence resources in the aftermath, but as the war entered its third week, a sense of unease was growing. In Germany, Chancellor Gerhard Shroeder is having to restrain the pacifist tendencies of the strong and vocal Green Party.
Half of Italy's leftist opposition supports the war, and the other half does not. No one can sort out which is which. Spain is annoyed it has not been given a bigger role in the European military and strategic response, while France is distracted by the increasingly open conflict between its socialist prime minister, Lionel Jospin, and President Chirac.
For the currency-linked countries in Europe, it is not just that the political agenda has slipped from their grasp ' it is the fact that there is so little concern. Euro-denominated notes and coins are about to be released, the culmination of decades of political planning, and there is only polite interest from the US and UK.
In European boardrooms there is still suspicion the US will use the attacks to further its political and economic aims, and resentment the event has led to the collapse of important companies. Estimates for the cost of rebuilding Swissair have more than doubled in two weeks to SWF3bn. Despite great domestic pressure to bail out the airline, the Swiss government has agreed to bide by EU competition rules, and can not do much to save its flagship. Regional heavyweight Deutsche Bank has the critical mass required to ensure its survival, but Commerzbank has already been forced to cut 8.5% of its workforce.
The fact is, there is a crisis. European GDP growth predictions for 2002 are being revised downwards, yet many governments appear reluctant to use fiscal measures, one of the few remaining options to stimulate growth. While budgetary discipline and prudence are all very well, there is little merit over the long term in being theoretically correct but economically weak.
European markets have done well to recover the 25% lost in the weeks following events on 11 September. It is true projected earnings levels are too high and a correction is inevitable. But the region is not unattractive. Market valuations against bonds are improving, especially after recent bond outperformance.
The preference is for defensive stocks with high liquidity and quality of earnings. This means a bias towards large caps, companies with deep pockets and experienced managements. European governments might feel ambivalent, but investors are not averse to buying this market. They are just getting more picky. Cash has been building, which will fuel a rally when it occurs.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till