One on-going and seemingly never-ending concern is the European sovereign debt crisis. The only thing that is certain is that the crisis cannot be resolved without substantial leadership and participation by Germany, which has far and away the healthiest economy in Europe.
However, resolution of the crisis presents a thorny dilemma for Germany. On the one hand, many Germans, with their well-known habits of saving, conservative spending, and efficient production, strongly object to bailing out their more profligate neighbors. On the other hand, there is simply no doubt that the Euro zone has greatly aided German industry by fostering sales in Europe.
Simply put, the Euro as a currency has made German machinery more affordable. If the Euro zone were to break up (which once seemed unthinkable, but now at least possible) a return to the Mark would mean a much stronger currency, making German machinery more expensive. In addition, the Euro zone makes doing business in Europe easy.
It is unclear whether the latest effort to solve the crisis on December 9, 2011, will be successful. Details are lacking and many pundits are already stating that it is just, again, kicking the can down the road, although perhaps a slightly longer kick. Many argue that the economies of the Euro zone countries are so diverse and their national interests are so diverse that it is impossible that a single currency can survive, at least in its current form.
One natural result of a return to single currencies (or possibly even a "retrenched" Euro that includes only the more fiscally responsible Euro zone members) would be increased investment in the U.S. Why? If sales in Europe decrease, as expected, German and other strong European companies will look for other markets.
However, high manufacturing costs and a strong currency may make it impossible to sell European made machinery competitively in the U.S. and other markets. Need proof? Just look to Switzerland. And just yesterday, auto giant Toyota slashed its sales and profit forecast in large part due to the strength of the yen.
One solution is to expand production where the machinery can be made more cheaply and where it is to be sold. Simply put, even at today's exchange rate, investments in the U.S. are a bargain. The Fed has virtually insured this will be the case for the foreseeable future with its policy of low interest rates and "easing." Despite the public denials, the U.S. authorities are clearly following a weak dollar policy. The result: U.S. assets are on sale.
A resolution of the Euro zone crisis that ultimately results in a stronger currency in Germany would make the U.S. an even more attractive location for investment. The Southeastern U.S., with its historical ties to Germany, experience in manufacturing, and generally flexible labor laws make it an attractive location. Coupled with ready access through the Atlanta airport, the East Coast ports (Savannah, Brunswick, Charleston and Jacksonville), and location in the Eastern time zone (allowing ready collaboration with Germany during the business day), the Southeast becomes an obvious option.
European companies considering an investment in my home state of Georgia will find all of these advantages. They will also find considerable resources available from the State of Georgia, chambers of commerce, and utilities to assist in site location and recruiting a well-trained work force. Savvy businesses may also find manufacturing assets at bargain prices in bankruptcy proceedings or private sales.
If Europe, as we all hope, finds a solution that does not result in currency dislocations and a significant European slump, the U.S., and particularly the Southeastern U.S., will still remain a compelling value for diversifying manufacturing operations.