'Muddle through' for global economy

ON ASSET ALLOCATION

The first quarter saw a significant improvement in sentiment. Equities rallied, bond prices fell and briefly it looked like things were getting better. Some of this enthusiasm is understandable.

With the focus on austerity, the ECB support is good news and may well have prevented the collapse of a number of banks and perhaps sovereign states. This is the kind of aggressive policy response we think is necessary to avoid an EU breakup. However this does not solve more deep-seated solvency problems and more needs to be done by the stronger countries to generate growth. The cost of eurozone breakup and ensuing chaos is massive and well in excess of the cost of ongoing support of peripheral governments and their banking sectors. However it might be things need to get still worse befo...