Europe Channel: Latest Posts
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Emerging Markets
Will the Euro exist in 3 years?
Before scoffing at the question, consider these facts:
Italy and Greece have quickly growing public debt of about 100% of GDP and shrinking tax revenues. Without independent currencies, Italy and Greece can’t devalue and inflate away their debt. Investors are still willing to finance such high levels of borrowing at single digit interest rates under the assumption that as members of the EU, Italy and Greece are safe from both inflation and default. What happens when investors start questioning the long-term solvency of these governments? What happens if they face a sovereign “bank run” as investors flee to safer sovereign debt? -
Europe
Germany Shows Leadership (?)
In the discussion over whether or not Ireland and other eurozone countries face serious economic issues (e.g., as suggested by the credit default swap, CDS, market), we have been joined by an unlikely ally: the German Finance Minister, Peer Steinbrueck. To avoid any misunderstanding, here is the exact wording from Bloomberg this morning:
German Finance Minister Peer Steinbrueck said late yesterday that euro region countries may be forced to bail out members of the 16-nation bloc that face problems refinancing their debt.
While he didn’t name countries facing problems, Ireland is in a “very difficult situation,” Steinbrueck said.
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Europe
The employment costs of subsidizing Fiat (Mr Berlusconi meets Stolper and Samuelson)
Following the debacle of car sales and production in Italy, as elsewhere, see here, and the “calls for action” by Confindustria, the entrepreneurs association (according to which about 300,000 may be at are at risk) also the Berlusconi government has finally decided to pass new support measures for the automobile industry: a subsidy of 1,500 Euros for purchases of a new cars (the measures also contemplates tax deductions for furniture and white goods).
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Don't Shoot the Messenger
Santander’s Banif Fund Suspends Payments
“I would now expect several eurozone countries with weak banking sectors to get into serious difficulties as the crisis continues. There is a risk of cascading sovereign defaults. If this was limited to countries of the size of Ireland or Greece, one could solve this problem through a bail-out. But solvency risk is not a problem confined to small countries. The banking sectors in Italy, Spain and Germany are increasingly vulnerable.” Wolfgang Munchau, Financial Times, 15 February 2009.
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The Wilder View
Lending standards tight according to global loan officer surveys
Global lending standards are tight; and why shouldn’t they be when the unemployment rate is surging in most G7 economies?
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Europe
Every Consensus Must End
The prevailing consensus on any economic policy is a fascinating beast. For years it can stay put, seemingly immovable, and even – in some cases – becoming enshrined in legislation or central bank statute. One day it begins to shake, ever so slightly; under the pressure of events, a wider range of serious opinion develops. And then, all of a sudden, the consensus breaks and you are running hard to keep up. -
Europe
Relaxation of Maastricht – not a good idea
As the financial crisis drags on, one of the big winners has certainly been euro membership. Being offered shelter from the storm of volatile exchange rates has lead to a surprising line of countries that would like to fast track EMU membership. But while the potential short-term benefits for the applicants are clear (foremost [...]
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Europe
The G7 Needs To Act, This Weekend, On Ireland
Look at the latest Credit Default Swap spreads for European sovereigns (these are the data from yesterday’s close). As we’ve discussed here before, CDS are not a perfect measure of default probability but they tell you where things are going – and changes within an asset class (like European sovereigns) are often informative.European CDS have been relatively stable – albeit at dangerously high levels – for the past month or so. But now Ireland has moved up sharply (the green line in the chart). We’ve covered Ireland’s problems here before (banking, fiscal and – big time – real estate); type “Ireland” into our Search box for more. -
Don't Shoot the Messenger
Germany’s Incredible Shrinking Economy
The FT says this is worse than feared, and I say it is just what I was expecting (see here, I do hope that doesn’t make me one of those “visionaries” you are all so busy talking about).
Germany’s economic slump in the final quarter of 2008 proved worse than feared, official figures showed on Friday, with the country posting the sharpest fall in gross domestic product since the country was reunified in 1990.The larger-than-expected 2.1 per cent plunge in GDP in the final three months of the year showed Europe’s largest economy contracting at a faster pace than the UK in the same period and threatening to drag down the performance of the 16-country eurozone.
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Europe
Europe Is in Bigger Trouble than the U.S.
This is a theme that Simon in particularly has been sounding. Now, according to the Telegraph, a confidential European Commission memo confirms this. To review, the basic problems, relative to the U.S., are:
