Archive for the ‘euro’ Category
While cutting the growth outlook of the global economy, Chief Economist of the International Monetary Fund (IMF) Olivier Blanchard said yesterday, “…the main challenge is very much in Europe.” (Source: “IMF Cuts Global Growth Outlook as Europe Demand Urged,” Bloomberg, April 16, 2013.)
Blanchard showed further concerns regarding the economic slowdown in the eurozone, saying, “Europe should do everything it can to strengthen private demand. What this means is aggressive monetary policy and what this means is getting the financial system stronger…” (Source: Ibid.) In other words, print more paper money.
Greece, Spain, Italy, and Portugal are facing a staggering economic slowdown and are dragging the stronger eurozone nations down with them. The countries that were supposedly “immune” to the debt crisis in the region are now feeling the pressures.
Germany, the strongest nation in the eurozone and the fourth-largest economy in the world, is having troubles; demand is falling. German car sales plummeted 13% in the first quarter of 2013. (Source: Financial Times, April 17, 2013.) The Bundesbank, Germany’s central bank, expects the country’s gross domestic product (GDP) to increase by only 0.5% in 2013. (Source: MNI News, April 16, 2013.) But being so early in the year, this 0.5% GDP growth can easily turn into a 0.5% contraction, considering the problems in the eurozone.
As I have been writing since the beginning of 2012, the economic slowdown in the eurozone will spread to other parts of the world, rather than it being contained.
The events in Cyprus sent a significant amount of fear into the global economy. And the crisis there still isn’t over. … Read More
The real problem for the euro is the lack of leadership—in banking and politics—in the region. There is no flexibility in the euro currency to help those countries in need.
The failure of decisive action in the eurozone is pronounced, but it is too difficult. There is no unified political, financial, or regulatory leadership. So how can the euro work?
No situation is the same, but Sweden experienced a real estate crash and credit crunch in the early 1990s—the worst since the 1930s.
According to Bo Lundgren, known as Sweden’s “Mr. Fix-It,” here’s what Sweden did after a period of financial disbelief:
1. Sweden unified politically.
2. The government immediately guaranteed all cash deposits at all banks. Two banks (out of more than 100) were nationalized, and they had to give common stock to the government, which was later sold.
3. There was restructuring, the closure of tax loopholes, spending austerity, and a currency devaluation of 25%.
Currency devaluation is the very thing that struggling eurozone countries cannot do. The “Swedish Solution” was not perfect, but at the very least, it was decisive action. After several tough years, Sweden was back on the growth path.
Getting in front of sovereign debt is now critical.
Every quarter or so, there’s a shock in capital markets regarding the sovereign debt and banking crises in the eurozone. Then there are patchwork remedies and more sovereign debt.
Today, … Read More
If you go to Europe and you find yourself in Holland (the Netherlands), you’ll likely fly through Schiphol Airport on the edge of Amsterdam. It’s one of the best airports in the world, in my humble opinion. When you go through security, you are treated like a paying customer—which you are. The euro currency has become a lot more affordable for obvious reasons.
I visited Europe and Holland, specifically, in 2011 to visit my great-uncle’s war grave at the Begraafplaats Crooswijk cemetery in Rotterdam. It is a strikingly beautiful cemetery. The Dutch do a masterful job of maintaining war graves. Thank you.
My trip was subsidized by an old college buddy who has a huge (for Europe) apartment in Amsterdam. It’s the best location in town. In his job, he is the second-most powerful person on ING Group’s trading floor. He is the information technology (IT) guy.
Amsterdam is one of the most unique cities I’ve ever been to (ahem, not for those reasons). It is one of Europe’s top destinations (perhaps for those reasons). It boasts stunning architecture and is home to the world’s oldest stock exchange. The NYSE Euronext N.V. is Amsterdam’s stock exchange today.
Amsterdam was the financial center of the world a long time ago, centuries before the euro. Apparently, the Dutch East India Company was the first multinational corporation and the Bank of Amsterdam was the first central bank. It financed the company in guilders, which eventually joined in creating the euro currency. The city is still a financial center in Europe, but history keeps repeating itself.
Like many banks in Europe, ING … Read More
There was another reminder on Monday morning that the eurozone continues to be in a financial mess. In an unprecedented move, Cyprus plans to tax bank deposits at 6.75% and 9.9% to raise US$7.6 billion in capital as part of the country’s bailout deal. (Source: Steinhauser, G., Stevis, M., and Walker, M., “Cyprus Rescue Risks Backlash,” Wall Street Journal March 18, 2013.)
But what is alarming is the proposed tax would apply to all deposits, regardless of size, and in my view, this cannot be good. For the stock market, the news is renewing fears the eurozone may be set for another potential financial backlash. Investment bank Nomura suggests the tax move could result in the Cyprus economy contracting 15% over the next two years.
What the move indicates is that there are clearly financial issues in the eurozone, which I feel traders have largely pushed aside here for the recent stock market rally.
When you have 17 different countries with their own political and economic systems come together to form the eurozone, you know there will be problems. Unfortunately, it has not been smooth sailing since the beginning of the euro in 1999. The region is in a recession.
As I have discussed in the past, the problem is that the global economy is so interconnected now that problems in the eurozone will impact economies around the world, including the United States and China.
The reality is that the eurozone financial crisis is still around, and the problem overseas is not going away. Consumer confidence in the eurozone came in at a muddled -23.6 in February, according to … Read More
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