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No End in Sight for Eurozone Recession

No End in Sight for Eurozone Recession

The ailing Eurozone is now officially in its longest ever recession, once again prompting speculations about the single currency’s future. Signs of crisis are clearly visible as nine out of 17 eurozone nations are in recession with Francois Hollande’s France joining the list of economic underachievers.

The GDP of 17 eurozone countries shrank by 0.2 per cent in the beginning of 2013. The European powerhouse Germany only grew by 0.1 per cent in the first quarter while France’s economy shrank by 0.2 per cent for the second quarter in a row. The country’s unemployment rate is expected to rise from the current 10.6 per cent. President Hollande is now the most unpopular president in French history, even surpassing his predecessor Nicolas Sarkozy who was widely disliked.

The shoddy data was followed by Pew Research Centre’s report according to which public support for the European Union fell from 60 per cent to 45 per cent. Pew’s research confirmed the perilous situation of the European project which is already being buried in many European countries. For instance, Spain’s dire situation is likely to continue and even worsen while the austerity policies enacted by many nations do not seem to work or stimulate growth.

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The Stubborn Man of Europe

The Stubborn Man of Europe

High hopes, grandiloquent speeches, beautiful office buildings and elegantly designed symbols. All the seemingly necessary elements for a functioning supranational union are in place, but the recession plaguing the Eurozone is here to stay. According to EU’s spring economic forecast, eurozone is not about to bounce back from its current state anytime soon. With its stubborn and archaic policies, France is one of the countries preventing growth.

Olli Rehn, EU commissioner for economic and monetary affairs said that France might receive an additional two years to bring its deficit within the target three per cent of gross domestic product. France’s dire state can be explained by the country’s president Francois Hollande’s policies which are a mixture of nationalism, socialism and protectionism.

New York Times, hardly a champion of free markets, lamented Hollande’s misguided pride over preventing Yahoo from purchasing a controlling stake in the French video streaming site, Daily Motion. The NYT editorial reminded Hollande that after Skype - a Swedish/Danish venture - was sold to Ebay, its founders went on to invest in new startups.

With a president too scared to promote entrepreneurship, it seems that France has become a symbol of stagnation because it is willingly preventing its citizens from succeeding and connecting with the rest of the world. In modern financial markets, there is very little room for petulant nationalism and archaic rhetoric. Hollande needs to decide whether he wants to cling to fleeting notions of greatness or embrace modernity by freeing French innovation.

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German Business Activity Down

German Business Activity Down

German Business Activity Down The Eurozone figures for France are looking slightly better, but the country known as Europe’s powerhouse is showing signs of economic decline following weak PMI numbers released on Tuesday. The survey conducted by Markit revealed surprisingly bad data coming from Germany, largely considered as the backbone of the Eurozone economy. Usually the data shows other economies weakening while Germany expands. The fact that German economic performance is waning is an alarming sign and might indicate a worsening recession throughout the common market. Markit’s survey measuring early gauge of business activity, increased to 46.6 per cent in April from 46.4 per cent in March, thus failing to reach the magical number of 50 which separates growth from withering economic performance.

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Stocks Finish Strong in the US

Stocks Finish Strong in the US

All three major indices finished superbly by the end of trading on Friday and had one of the best weeks of the year overall. The Dow, S&P 500 and Nasdaq ascended substantially, will all three seeing increases between 2.1 and 2.8 per cent. Dow and Nasdaq were both nearing record highs on Thursday although there was no major facilitator to cause the soar. It seems that investors are expecting the stocks to reach new highs in the coming weeks and therefore continue to trust in the bull market’s sustainability. Friday’s momentary sell-off was due to worse-than-expected data, but did not impact hugely the largely successful week of strong performance by the three major indexes.

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Portugal, Ireland to Avoid Disaster

Portugal, Ireland to Avoid Disaster

Portugal and Ireland, two debt-ridden Eurozone economies will likely receive more time to repay their loans after a meeting between euro ministers in Dublin on Friday. The news was welcomed by both countries which have struggled tremendously with ailing recoveries after massive debt-crises. Both countries look to receive an additional seven years to pay back their debts and make a healthy and robust return to the financial markets.

The finance ministers would be wise to discuss the potentially catastrophic consequences of the bloated and bigger-than-expected Cyprus bailout package which could derail the small island nation and even lead to mass exodus. Such worries became more realistic after ti was rumored that Cyprus needs to cough up an additional 6 billion euros to cover the expenses thus increasing the total amount to 23 billion euros. The figure is higher than the size of the whole Cypriot economy.

 

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Bailout Friday

Bailout Friday

Eurozone ministers meet in Dublin on Friday to discuss Cyprus bailout and the possibility of extending rescue package repayment dates for Ireland and Portugal. The first item on the agenda is Cyprus as ministers are readying for heated deliberations over the bailout conditions in exchange for the 10bn euros from the Eurozone and the International Monetary Fund. Nicosia is eagerly waiting for the first payment of 75 million euros, due in May, to pay for public sector wages. Discussions in Dublin will also revolve around the recent estimate according to which the restructuring of Cypriot banks will throw the country into a deep recession for at least two years.

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Springtime for Hollande?

Springtime for Hollande?

The French president Francois Hollande’s arguably disastrous policies have put France in the same category of failing economies as Greece, Spain and Italy. Recent reports from Brussels suggest that France is on a collision course with Germany and other countries that advocate for fiscal responsibility. A report released by the European Commission on Wednesday used harsh language to describe France’s financial situation.

“France’s public sector indebtedness represents a vulnerability, not only for the country itself, but also for the euro area as a whole,” said the EC report.

The report also stated that “the resilience of the country to external shocks is diminishing and its medium-term growth prospects are increasingly hampered by longstanding imbalances.”

EC went as far as to threaten France with sanctions if it fails to change course. The two protagonists in the unravelling Eurozone play, Germany’s Angela Merkel and Hollande have been at odds since Hollande was elected president. Their economic policies and visions differ fundamentally, as Merkel has emphasised fiscal responsibility, while Hollande has sworn in the name of big government policies to revive the French economy. If one is to look at all the relevant variables measuring a country’s economic health, Merkel has succeeded while Hollande – who is now extremely unpopular in France – is heading towards a massive failure.

 

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Spain Continues to Disappoint

Spain Continues to Disappoint

Reports this morning suggest that Spain is in the throes of an ever-deepening financial crisis. The country’s industrial production took another dive, falling by 6.5 per cent in February compared to the corresponding month in 2012. Earlier this morning, during a speech to the country’s parliament, Spain’s Prime Minister, Mariano Rajoy appealed the eurozone for solidarity. He asked that all countries take part in attempts to bring the region back from the verge of an economic abyss. Meanwhile, data from Italy and Spain also looked weak, while France’s industrial production only dropped by 2.8 per cent year-on-year in February.

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Germans Committed to the Euro

Germans Committed to the Euro

A poll released on Tuesday found that an overwhelming majority of Germans oppose a return to the Deutschmark. A whopping 69 per cent of the respondents answered in the affirmative when asked if they would like to stay in the euro, while only 27 per cent favoured exiting the euro and returning to the old Deutschemark. The results indicate that Germany’s euroskeptics have, led by Bernd Shucke, have very little support. Apparently the country’s robust and consistently well-performing economy swayed the Germans that the single currency is a worthy experiment. Most analysts concede that the on-going fiscal crisis shaking the Eurozone caused great worry among Germans, but the common perception in the country confirms the results of the survey: for Germany, the euro’s benefits outweigh its costs.

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Maggie Called It

Maggie Called It

The former British Prime Minister Margaret Thatcher, who passed away yesterday, was a ferocious critic of the single currency. Her prophetic words ring true today as we are witnessing an unprecedented wave of failing economies across the eurozone.

“Every single fixed exchange rate has cracked in the end. We’re all at different levels of development of our economies. Some countries simply couldn’t live up to a single currency… We should each of us be proud to be separate countries cooperating together,” Thatcher acknowledged already in 1992.

Indeed, the eurozone’s main hindrance today is the development gap between its member state. Even if the euro is still staying afloat, Mrs. Thatcher’s words should resonate with Europe’s policy makers.

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