Friday, May 3, 2013

Europe has not rounded the corner

The long awaited recent move by the ECB was described by a writer on the BBC as "opening the window on a convertible", such a minor drop in interest rates from .75 percent to .50 percent will not have much effect on the economy and certainly is no game changer. The term "lulled into complacency" is gaining new meaning and it should be included in every article written in these troubled times. Anyone seriously thinking that after all the quantitative easing and expansion of central bank balance sheets across the world this minor drop in the ECB rates will make much of a difference is living in a fantasy land

A few paragraphs near the end of a recent story about European and Italian politics hit on a far more important part of reality. In Cyprus, the newly elected President Nicos Anastasiades was rocked in his first month in office by a banking crisis that brought the euro zone to the brink. He has been forced to shepherd a new bailout agreement through a skittish Parliament that rejected the first one. In Greece, the coalition government of Prime Minister Antonis Samaras, still less than a year old, is boasting that his country is now projected to turn the corner on debt next year in spite of the fact that these projections have never been accurate in Greece or anywhere else in Europe, the economy continues to sink.

In France, President Fran├žois Hollande, who will mark his first year in office next month, has been told by International Monetary Fund forecasters that France will join Spain, Italy, Portugal, and Greece in recession this year despite his pledge to boost growth. Given the economic downturn, France will have trouble meeting its deficit targets even if the EU agrees to ease them somewhat. And in the Netherlands, Prime Minister Mark Rutte, the conservative leader who was re-elected last September, announced earlier this month that he was breaking with Germany’s hard line on austerity and suspending planned budget cuts in an effort to restore confidence in the economy.

Back in Germany none of this will deter Merkel in her current campaign, because winning elections is a politician’s reason to exist, but even Merkel is well aware it won’t be easy with the economic headwinds faced by Germany. It's hard to see anything resembling a case for optimism anywhere on the continent. Even though the Spanish government's borrowing costs have fallen since the ECB introduced its backstop. Even after this action unemployment has reached new highs in both Spain and across the Euro-zone. In Spain small and medium-sized enterprises can't get capital except on prohibitively expensive terms.Again I'm forced to say the structural problems facing Europe remain mostly unaddressed.


Footnote; I have written several articles about the problems in Europe, a few of the other recent post can be found below,
                 http://brucewilds.blogspot.com/2013/05/eu-banking-union-in-several-years-maybe.html
                 http://brucewilds.blogspot.com/2013/03/the-euro-has-problems-big-problems.html
                 http://brucewilds.blogspot.com/2013/03/a-run-on-banks-and-euro.html

5 comments:

  1. your "right on!"

    Europe has to "abandon the ECB Austerity policies!"

    and "adopt the U.S. FED "QE" type policies"...

    at first this may look like a "loser too" BUT... here's the difference...

    a. Europe Austerity Policy... gradually surrendering and "strangling the Golden Goose..."

    b. U.S. Fed Bernanke "QE" Policy: whatever it takes to "keep Economy going...have to use "gov't spending" since "private sector" with "bottom line mentality" ...will not step up to the plate... and "take some financial lumps" for the "greater good of the mass population of "consumer mkts..."

    c. the SAVING GRACE of Bernanke policy is that: New Green Technology is "ramping up" ...AND THIS WILL RESULT IN A "GLOBAL ECONOMIC RECOVERY"...THINK ABOUT THE IMPACT OF THE "ELECTRIFICATION OF THE U.S. AND HENRY FORD WITH THE introduction of the "model T" and "mass production...

    d. this is a "paradigm shift" to new Green Tech...out with the "foot dragin'" "old boy network policies" that are exhausted...they have to take "many lumps" as, for example...we switch from dependence on "big oil" to solar, wind, wave, (new magnetic engine generators for homes) will put "hurting on big power utilities"...stuff like this... but the "old boys" (ECB, Merkel, Germany) don't want to "take their lumps" to bring in this "new future green tech" that sidesteps much of their "vested interest power and control"...

    so Europe has "to ramp up GOV SPENDING" (yeah, you print money... but it's similar to gov backing of Tesla with "ac power network electrification" and Ford by gov paving of roads and interstates...

    this IS THE SOLUTION to A GLOBAL ECONOMIC RECOVERY...

    ReplyDelete
    Replies
    1. an example of this: the "pure electric car" of Tesla Motors (TSLA)...

      gradually this will replace "all gasoline guzzler" Internal Combustion Engine Vehicles...

      a. greatly reducing pollution (Tesla has "0" pollution...)
      b. has a 250 mile range on about $2.50 in overnight electricity usage.
      c. 0-60 in about 4 seconds...so it is a performance car
      d. "silent" except for "sound of tires"...

      so this is a "rising star" in "new green tech" for the world...

      Delete
    2. It seems you may agree with my premise that Europe has not turned the corner but we disagree on the answer to their problem. I don't see printing money as the answer and feel that austerity has been given a bad rap, below is a post supporting austerity and its virtues.

      http://brucewilds.blogspot.com/2013/04/austerity-is-being-given-bum-rap.html

      Delete
  2. Being able to acquire an income protection cover is a wise thing to do in such a shaky economy.

    ReplyDelete
    Replies
    1. Losing your job when so few are available is a problem. Trying to insure that you will continue to have an income is a valid response.

      Delete