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 François 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