Thursday, 5 June 2014
The European Economic Zombie Commuity
But the Eurozone economy is something else, after a sclerotic recovery that was barely, even in the Northern States, better than the UK's and hardly above inflation, all the main economic indicators are falling again. Business activity has slowed in May, Manufacturing output has slowed in May and inflation is also falling.
All the while there is QE in the background and record low interest rates. But today will see the European Central Bank cut from 0.25% to 0.1%. How this is supposed to make a difference is beyond me. Rates at that level are a signal not a tool.
The European banks are not lending and companies are not investing - as we can see from unemployment being at an 11.5% average across the Eurozone.
It really is a tale of woe and hard to see a way out when the economy is straightjacketed into the Euro. Spain, Italy and Greece desperately need a devaluation to write-off the debt and pain of recession and grow once more, albeit from a lower base - confidence is the name of the game and that is what the euro currency shreds. With markets so subdued even the German powerhouse is in trouble and a weakening China also means that Germany is not in the next 2-3 years going to lead some economic charge.
Of course in the UK we did not have the euro. A devaluation occurred, although that has now been made up in currency terms, QE was undertaken on a wide scale and the Bank of England pushed Funding for Lending and other such programmes to try and re-start the economic engine. It took a while but it seems to have been partially successful (the cancelling of austerity will be seen as the main failure in years to come).
The Euro crisis of 2011 seems like distant history now, but the reality of its malign influence is still with us and will be for years to come; The politicians of Europe have so much capital invested in the project that they will bankrupt the economy of the EZ before letting the Euro go. We maybe here sometime.