The EU is realizing that collapsing economies can’t pay what is owed.
European leaders are loosening the economic shackles once demanded by Germany as the recession and mounting unemployment in southern Europe shove aside the debt crisis as the euro area’s biggest headache.
A two-day Brussels summit starting today will endorse plans for “structural” assessments of national budgets, according to a draft statement, using code for granting countries such asFrance, Spain and Portugal extra time to bring down deficits.
The 17-nation currency region will follow last year’s 0.6 percent contraction by shrinking 0.3 percent in 2013, the first back-to-back decline since the euro’s debut in 1999, the commission forecasts. It sees bloc-wide unemployment at 12.2 percent in 2013, with joblessness as high as 27 percent in Greece and 26.9 percent in Spain.
Pressure remains on France, Italy and the countries tapping emergency financial aid to make their economies more productive by reducing labor costs and deregulating professions. The commission, the Brussels-based enforcer of the budget rules, fended off attacks from southern Europe that it has been too strict and parried warnings from northern Europe that it is becoming too lax.
The fall in eurozone employment sped up in the last three months of 2012, dashing hopes that the labour market in the troubled bloc could be stabilising.
Employment in the single currency area slid 0.3pc in the fourth quarter of 2012, a 0.8pc fall year-on-year, according to official figures from the EU statistical agency, Eurostat.
Economists had taken courage from two consecutive quarter-on-quarter declines of 0.1pc between April and September, which seemed to indicate the sluggish jobs market could be nearing a turnaround.
However Thursday’s figures, combined with Eurostat’s most recent unemployment statistics indicating the bloc’s jobless had hit an all-time high of 11.9pc in January, paint a glummer picture.
Italy meets Germany.
Société Générale strategists are warning clients of another “Eurozone shockwave” coming this spring.
In fact, they say it’s going to be one of the three major themes driving global currency markets for the rest of 2013.
The Italian election yielded inconclusive results, and it’s looking more and more likely that another election will have to be held. Of course, that one may not be conclusive either.
Meanwhile, Germany holds its own elections in September. If Italian bond yields rise to unsustainable levels, German politicians aren’t likely to be too supportive of their neighbors to the south while trying to secure re-election at home.
The stock market is starting to look stretched.
Don’t Expect Further Strong Gains In US Stocks (Capital Economics)
At the beginning of the year, John Higgins of Capital Economics was among the strategists who forecasted gains for the stock market. Specifically, he said the S&P 500 would hit 1,550 by mid-year.
But now he warns things are getting stretched.
“We are not convinced that equities are poised to rack up further substantial gains, though,” he writes. “Admittedly, the Fed is unlikely to take away the punchbowl in the near future as the economy slowly recovers. But there are signs in the relatively poor performance of other asset classes (such as emerging market equities and commodities) that the power of quantitative easing to boost the prices of “risky” assets is fading. Profit margins also remain stretched, which should restrain earnings growth, while the price that investors are willing to pay for earnings is high from a historical perspective – even if we allow for some structural changes that may have affected the “fair” value of the market over time. Finally, we continue to think that the crisis in the euro-zone could flare up again. The upshot is that we are sticking for now to our year-end forecast of 1,500.”
I have always said that the next wave of the economic collapse would start in Europe and that is exactly what is happening. So keep watchingEurope. What is happening to them will eventually happen to us.
The following are 17 signs that a full-blown economic depression is raging in southern Europe…
#1 The Italian economy is in the midst of a horrifying “credit crunch” that is causing thousands of companies to go bankrupt…
Confindustria, the business federation, said 29pc of Italian firms cannot meet “operational expenses” and are starved of liquidity. A “third phase of the credit crunch” is underway that matches the shocks in 2008-2009 and again in 2011.
In a research report the group said the economy was caught in a “vicious circle” where banks are too frightened to lend, driving more companies over the edge. A thousand are going bankrupt every day.
#2 During the 4th quarter of 2012, the unemployment rate in Greece was 26.4 percent. That was 2.6 percent higher than the third quarter of 2012, and it was 5.7 percent higher than the fourth quarter of 2011.
#3 During the 4th quarter of 2012, the youth unemployment rate in Greece was 57.8 percent.
#4 The unemployment rate in Spain has reached 26 percent.
#5 In Spain there are 107 unemployed workers for every available job.
#6 The unemployment rate in Italy is now 11.7 percent. That is the highest that it has been since Italy joined the euro.
#7 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.
#8 Unemployment in the eurozone as a whole has reached a new all-time high of 11.9 percent.
#9 Italy’s economy is starting to shrink at a frightening pace…
Data from Italy’s national statistics institute ISTAT showed that the country’s economy shrank by 0.9pc in the fourth quarter of last year and gross domestic product was down a revised 2.8pc year-on-year.
#10 The Greek economy is contracting even faster than the Italian economy is…
Greece also sank further into recession during the fourth quarter of 2012, with figures on Monday showing the economy contracted by 5.7pc year-on-year.
#11 Overall, the Greek economy has contracted by more than 20 percent since 2008.
#12 Manufacturing activity is declining just about everywhere in Europeexcept for Germany…
Research group Markit said its index of activity in UK manufacturing – where 50 is the cut off between growth and decline – sank from 50.5 in January to 47.9 in February. It left Britain on the brink of a third recession in five years after the economy shrank by 0.3 per cent in the final quarter of 2012.
Chris Williamson, chief economist at Markit, said: ‘This represents a major setback to hopes that the UK economy can return to growth in the first quarter and avoid a triple-dip recession.’
The eurozone manufacturing index also read 47.9. Germany scored 50.3 but Spain hit 46.8, Italy 45.8 and France 43.9.
#13 The percentage of bad loans in Italian banks has risen to 12.2 percent. Back in 2007, that number was sitting at just 4.5 percent.
#14 Bank deposits experienced significant declines all over Europeduring the month of January.
#15 Private bond default rates are soaring all over southern Europe…
S&P said the default rate for Italian non-investment grade bonds jumped to 9.5pc last year from 5.7pc in 2012 as local banks shut off funding. It was even worse in Spain, doubling to 14.3pc.
The default rate in France rocketed from 0.8pc to 8.7pc, the latest in a blizzard of bad news from the country as the delayed effects of tax rises, fiscal tightening, and the strong euro do their worst.
#16 Lars Feld, a key economic adviser to German Chancellor Angela Merkel, recently said the following…
“The sustainability of Italian public finances is in jeopardy. The euro crisis will therefore return shortly with a vengeance.”
#17 Things have gotten so bad in Greece that the Greek government plans to sell off 28 state-owned buildings – including the main police headquarters in Athens.
One of the few politicians in Europe that actually understands what is happening in Europe is Nigel Farage. A video of one of his recent rants is posted below. Farage believes that “the Eurozone has been a complete economic disaster” and that the worst is yet to come…