Wikiepdia: The Great Depression severely affected central Europe. The unemployment rate in Germany, Austria and Poland rose to 20% while output fell by 40%. By November 1932, every European country had increased tariffs or introduced import quotas.
Under the Dawes Plan, the German economy boomed in the 1920s, paying reparations and increasing domestic production. Germany’s economy retracted in 1929 when Congress discontinued the Dawes Plan loans. This was not just a problem for Germany. Europe received almost $8 billion USD in American credit between 1924 and 1930 in addition to previous war time loans.
Germany’s Weimar Republic was hit hard by the depression as American loans to help rebuild the German economy now stopped. Unemployment soared, especially in larger cities. Repayment of the war reparations due by Germany were suspended in 1932 following the Lausanne Conference of 1932. By that time, Germany had repaid 1/8 of the reparations. People were devastated about how the Weimar Republic dealt with the economy.
Falling prices and demand induced by the crisis created an additional problem in the central European banking system, where the financial system had particularly close relationships with business. In 1931, the Creditanstalt bank in Vienna collapsed, causing a financial panic across Europe.
1. The economies of 17 out of the 27 countries in the EU have contracted for at least two consecutive quarters.
2. Unemployment in the eurozone has hit a brand new all-time record high of 11.7 percent.
3. The unemployment rate in Portugal is now up to 16.3 percent. A year ago it was just 13.7 percent.
4. The unemployment rate in Greece is now up to 25.4 percent. A year ago it was just 18.4 percent.
5. The unemployment rate in Spain has hit a brand new all-time record high of 26.2 percent. How much higher can it possibly go? This is already higher than the unemployment rate in the United States ever reached during the Great Depression of the 1930s.
6. Youth unemployment levels in both Greece and Spain are rapidly approaching the 60 percent level.
7. Earlier this month, Moody’s stripped France of its AAA credit rating, and wealthy individuals are leaving France in droves as the socialists implement plans to raise taxes to very high levels on the rich.
8. Industrial production is collapsing all over Europe. Just check out these numbers…
You don’t have to be an economic genius to understand that the perpetual uncertainty over the Eurozone’s future has led to a widespread freeze on industrial investment and development. Industrial production is collapsing at an accelerating rate, falling 7% year-on-year in Spain and Greece, 4.8% in Italy, and 2.1% in France.
9. There are even trouble signs in the “stable” economies in Europe. In Germany, factory orders in September were down 3.3 percent from the month before, and retail sales in October declined 2.8 percent from the previous month.
10. The debt of the Greek government is now projected to hit 189 percent of GDP by the end of this year.
11. The Greek economy has shrunk by more than 7 percent this year, and it is being projected that the Greek economy will contract by another 4.5 percent in 2013.
But sometimes you can’t really get a feel for how bad things really are over there just from the raw economic numbers.
The EU is a morally bankrupt blind behemoth that, in a doomed attempt to survive, destroys everything around it just to keep itself standing. In that, it is hardly different from several incarnations of the 20th century politburos in Russia and China – and those are by no means the darkest comparisons that could spring to mind.
There are tons of people working in and for the EU, some of whom are smart while others are not, some who are honest and some who are just self-centred , but the apparatus has become a vortex that sucks in all of them. There many be just a small window left for Europeans to retain a grip on democracy. There’s not much left. Stock markets may give the impression that things are going fine, but that is possible only because increasingly severe austerity measures are spreading rapidly, and have now reached the core, not just Greece and Spain. The EU induced illusions will keep coming fast and furious, however, until they don’t. And then it will be too late for democracy.
It’s all in a terribly shaky state already though. Ironically, maybe that’s the people’s best hope, that it will collapse before the power games are solved with the bureacrats as winners. Today, Italian PM Mario Monti lost his majority in the Senate; he could be gone within days. Only to bring back Silvio Berlusconi. Also today British Chancellor of the Exchequer George Osborne announced that UK austerity will last till 2018 and that he needs to borrow another £100 billion to soothe the deficit. Which led Fitch to threaten a UK downgrade. Mario Draghi, however, claimed that the Eurozone will swing back to growth in 2014. And no matter how hard you may find that to believe, remember: he can’t be voted out of office. Draghi doesn’t care about his credibility with voters, he wants credibility in the financial world. And he has it, because he delivers.
The next step in the elaborate European centralization plan was announced today by EU President Van Rompuy.
Europe is well on its way towards dismemberment. Because a few handfuls of power hungry nutcases seek personal satisfaction. Turning the entire continent into a Greek tragedy waiting to happen.
The way things are going, Europe can be safely written off until the 2020s. And it will drag everybody else a long way down with it, from Tokyo to Toledo, from Wellington to Washington, and from Sydney to Seattle. We just all of us seem to have run out of functioning political and economical systems. And we’re not nearly alert enough to that; we’re just looking out for number 1. Or whatever we think that is, or should be. It’s one big ancient Greek tragedy. And most of us still think we’re just spectators.
In fact, Reid argues that disappointing economic data – the one thing seemingly out of the ECB’s control – are what have driven the last two major selloffs in European markets:
The last two major European Sovereign risk off catalysts have been growth disappointments. In July 2011, the first sub-50 PMI print since 2009 for Italy started a 3-month savage sell-off that culminated in Berlusconi’s resignation, a technocrat Government and a couple of months later the first of two massive LTROs from the ECB. A period of calm and risk-on then ensued for 3-6 months as markets waited patiently (but expectantly) for a growth rebound after stability had been restored.
The growth rebound failed to materialise as we moved through Q2 2012 and the sell-off returned with a vengeance with Italian and Spanish equities hitting lows not seen for well over a decade in the former and for 9 years in the latter. 10 year bond yields in these two countries climbed above 6.5% and 7.5% respectively. The ECB finally rode to the rescue with the promise of the OMT program thus sparking the current large rally in peripheral risk and global markets generally.
So, what are the catalysts for a return of financial market turmoil in Europe in 2013?
Reid highlights three major issues.
To start, European stocks – and stocks in markets around the world, for that matter – are considerably overvalued based on historical correlations to PMI data:
In other words, markets may be considerably “overbought” at these prices, and they have a lot of room to move lower.
Several weeks ago Europe officially entered a double dip recession, and based on various secondary economic indicators, even Europe’s primary economic powerhouse, Germany, is on the verge of negative economic growth. The reasons for Europe’s woeful macroeconomic state are numerous, but boil down to two primary ones: i) massive external imbalances among Eurozone nations (think soaring peripheral debt) coupled with the inability to devalue the common currency as that would mean a failure and collapse of the joint currency union, ii) a desperate need for the periphery to regain price competitiveness (via wages and labor costs) with Germany in order to arrest and collapse an unemployment rate (general, but especially youth) that not even the most optimistic pundits dare claim is sustainable.
Said otherwise, most European countries (including France) face a desperate need for external devaluation, which is impossible under a monetary union, leaving only internal devaluation as an option. This is where the much maligned concept of austerity comes in: from a macroeconomic perspective, austerity is not so much an exercise at moderating the pace of debt increase (as neither Spain nor Italy have reduced their rate of debt issuance), but of gradually becoming more price competitive with Germany: a key outcome that will be needed for the Eurozone to have any chance of survival, i.e., lowering sticky unemployment rates from levels that virtually assure social “disturbances” in the months and years ahead.
And herein lies the rub: because while protests against “austerity” (which as we observed recently has still not been truly implemented in Europe, and certainly not in Portugal or Spain) are a daily event in most PIIGS nations, “you ain’t seen nothing yet.“ The reason: to achieve the unavoidable macroeconomic rebalancing, and to collapse the spread between soaring labor costs in the periphery and those of Germany (see chart below), the bulk of European countries will need to see wages collapse by anywhere between 30% and 50% to compensate for the lack of state-level currency devaluation optionality. And yes, this includes France.
Europe’s poverty and homelessness rates are surging…
Suicide rates are picking up…
Euro-zone youth unemployment is at a record 23.9% but Spain and Italy saw the biggest jumps (to 55.9% and 36.5% respectively)
Greece remains the worst at over 56% based on last data, while Germany rests at 8.1%.
EU Begins To Crack Further And To Implode: BUNDESBANK CUTS GERMAN 2013 GDP FORECAST, Call It A Recession, ECB Considers Negative Interest Rates, Italy And Spain Are Selling Off, And Fitch Will Downgrade The UK’s AAA Rating!!!
Albert Einstein famously observed that a sure sign of insanity was when someone kept repeating exactly the same experiment but expected to get a different result. Yet that appears to be what European policymakers are now doing in the way that they are handling Europe’s sovereign debt crisis. And in so doing, they are posing the greatest of risks not only to their own economic prosperity but also to the U.S. economic recovery.
The consequences of Europe sticking next year to the same policy mix as in 2012 are not encouraging since fiscal austerity would be being applied in the context of a less favorable external economic environment. Consequently, at best one must expect a marked deepening in the European economic recession. At worst, one might expect that a further deterioration in the European social and political conditions might force a disorderly exit of some countries from the Euro with untoward consequences for the global economy.