The United States has the most McDonald’s. Which country has the second most? It’s France, and overall Europe is McD’s second most important region. The company is guiding earnings expectation downward, because as long as the Eurozone remains in recession its profits and revenues will remain under pressure.
The Eurozone is going nowhere fast. Debt levels rose in 15 of the 17 countries that use the euro led by Ireland adding 7.7 points to 125.1% of GDP, Spain with 4 points to 88.2% of GDP (which does not include 4 points for the bank bailout), Greece with 3.7 points to 160.5% of GDP and Portugal with 3.5 points to 127.2% of GDP. The Eurozone recession shows no signs of turning into a boom, so those debt ratios will rise further fueled by the ECB’s ELA program.
The mainstream media is starting to figure out that Greece will never repay its debt. Astute readers of Dareconomics have been aware of this fact for a year. Even though the msm is late to the party, they can still come, because we have plenty of food for thought and drink for unthought.
Each bailout has been structured to keep things quiet until after German elections; note the graph and chart above and their ridiculous projections of economic growth and revenues. Once Angie is firmly ensconced in office, there will be giveaways to the PIIGS to pay for their silence during the campaign. If there is no debt forgiveness, there will be defaults. The money just isn’t there for Greece (and Portugal and maybe Ireland) to service its debts.
Rajoy enjoys a large majority in Parliament. Since his fellow PP party members are as corrupt as he is, there is no way that he will be thrown out of office. In fact, it does not appear that there will be any consequences to his alleged corruption.
Even if there were new elections, it is not clear that the Socialists or any other opposition party could form a government. It doesn’t matter anyway. The Socialists started the austerity program and are just as corrupt as the PP. They have given no indications that they would do anything differently than Rajoy.
Spain’s economy is doomed to a slow death by euro.
Supposedly, the deal between Letta and Berlusconi to form a government hinged on Letta’s Democratic Party agreeing to scrap the new and hated property tax. Now, Letta is backing away from this agreement. The problem is that cutting the tax costs too much, and Italy has no way to fill the resultant budgetary hole. This same problem existed before the two sides made a deal, so Berlusconi may think that he is being had. None of this bodes well for Italy’s fragile coalition government. If a solution cannot be crafted, a new set of elections is in Italy’s future.
Nothing stops the mainstream media’s housing recovery narrative. While the figures are being bandied about as a “surprise, Dareconomics readers were not caught off guard. As we predicted last month, the rise in interest rates has lowered existing home sales. Despite the cold, hard truth of lower sales, the “recovery” is still described as being “on track.”
The chart above illustrates that there is no housing recovery, because housing activity has not recovered to pre-2008 levels. Existing home sales are still 20% lower than they were at the peak over seven years ago. Moreover, even though prices remain “historically” low, this is an historically bad recession. The lack of new breadwinner jobs being created at this juncture of the recession will tamp down housing sales though flippers will consider selling to each other so that the illusion of the housing recovery remains.
The China Cash Crunch remains under control for now, but strains are still appearing in the market. Repo rates remain elevated from pre-crunch lows have begun to pick up recently as fears of a foreign capital outflow increase. China mostly finances itself and maintains huge foreign currency reserves, so fears of capital flight are over done. On the other hand, fears of a bloated and overextended financial system are not.