Eurozone Recovery Meme: Reality vs. Hope

Euro zone sees light at end of tunnel, pitfalls remain | Reuters.

Euro-Area Unemployment Increases to Record 12.1% Amid Recession – Bloomberg.

Markit Eurozone Retail Report.

Eurozone Retail Sales

Eurozone Unemployment 04.2013

Eurozone GDP Performance

Eurozone officials see “a light at the end of the tunnel.” That’s great.  Is the light bright enough so that they can examine the charts above? No matter what anyone says, there is no sign that the Euro Crisis is stabilizing, let alone ending.

Within the Brussels bubble, everything seems copacetic.  Money printing has flooded markets with currency forcing down yields where they may be.  This has changed perception, but the reality remains the same.  Let’s check out the statements made in this article, and see how they hold up:

Ireland’s rescue program is on track.  German and French banks got bailed out of their poor investment choices at the expense of the Irish taxpayer who continues to suffer underneath a 14% unemployment rate and stagnant economic growth.  Unemployment would be much higher, except that many Irish have left.

Greece and Portugal hope for a recovery next year.  Since 2010, Greece and Portugal have been hoping for a recovery.  If the mainstream media keeps predicting a recovery in these countries next year, eventually they will be right but not in 2014.

Slovenia’s banks can be dealt with.  This statement implies that there is a banking crisis in Slovenia.  Fortunately, this is spun to be good news as they “can be dealt with.”  By whom and for how much?

And although Malta’s banking system is vast compared with its economy, it is not structured in the same way as in Cyprus. The same goes for Luxembourg.  I didn’t know there were problems in Malta and Luxembourg.  Why are these countries mentioned out of the blue in this article? This cannot be good.

Spain’s bank restructuring appears to be working.  It depends on what you mean by “working.”  If one means that the banks are being kept afloat by the Spanish taxpayer while they continue to buy Spanish sovereign debt, then, yes, the restructuring is working.  If one means that these banks are healthy and can lend money to spur economic growth, then, no:

Spanish Loans to the Private Sector

By the way, nonperforming loans are still rising in lockstep with declining property values, so do not be surprised if Spanish banks require more capital prior to year end.

All the skeletons are out of the closet.  There are no major issues in the pipeline.  The only closet that is empty is Jason Collins’.  The Eurozone remains chock full of potential disasters.  A change in investor sentiment will send Spain or Italy into the icy, cold embrace of ESM or OMT.  Greece can always surprise.  Portugal still cannot finance itself, and France may soon join the party.

Yet none of that means the bigger issues underpinning the crisis are resolved. While the existential threat may have passed, the need to implement tough and unpopular structural reforms remains, and plans for tighter oversight and control of banks via a ‘banking union’ are not even half-way there.  The existential crisis remains, because the only way to guarantee the continued exist of the euro is joint and several liability for each others government and financial system debts with draconian economic reforms for each country.  In order to achieve this aim, the rich countries will have to pay, and everyone will have to relinquish sovereignty.  There is little support for this among the states or their citizens.

“With Cyprus, we have hit the lowest trough of the crisis,” said Peterson’s Jacob Kirkegaard of the Peterson Institute for International Economics, a think tank in Washington.

“Although we might be down here for a little while longer, due to risks of an aggravated euro-area credit crunch, there is light at the end of the tunnel. Cyprus is now focusing minds on the structural repair of the euro area, such as banking union.”

The bottom has been called several times since the onset of the crisis.  Yet, GDP continues to shrink and unemployment continues to rise.  As long as these countries continue to save the euro, they will suffer because the euro is the problem.


2 thoughts on “Eurozone Recovery Meme: Reality vs. Hope

  1. The resilience of Southern Europe in the face of disastrous monetary and fiscal policy is the real story. Club Med was not supposed to stay alive this long. On any rational basis Greece, Cyprus and Portugal should have been forced out of EMU a while ago. We know this can’t continue indefinitely, but it impressive that they are still fighting in a losing war. It took the US ten years to lose the war in Vietnam, and eleven years to lose the war in Afghanistan. It may take that long for the EZ to blow up.

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