Why America Will Struggle if the Eurozone Languishes
Monday, April 22nd, 2013
By George Leong, B.Comm. for Profit Confidential
In these pages, I recently discussed the slowing global economy and its potential impact on stocks. (Read “Caution: Market’s Strength Is False.”)
We heard China was showing renewed evidence of stalling after its first-quarter gross domestic product (GDP) growth showed some fragility. Of course, it should not be a surprise, given what Europe and the eurozone are going through. The reality is that no country is immune from any other.
The world’s top countries all have significant trade with each other. You knew that when the eurozone stalled and fell back into another recession, it would hurt China and other key trading partners. This is not rocket science, but just simple common sense.
So here we have the dogs of the eurozone: Greece, Portugal, Italy, Spain, Ireland, and tiny Cyprus.
Sorry, but these countries will take years—or in the case of Greece, decades—to turn around. There’s no secret formula, only time.
And in the process, these weak members of the eurozone will continue to suck the life out of Germany and France, which are also facing their own growth issues. Now you see why England rejected the initial idea to join the eurozone. I wonder if Germany feels the same now.
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News that China hit a wall in the first quarter was not a surprise. I mean, you could not have expected anything else, given the despair in the European Union (EU), which comprises 27 countries, including the 17 countries making up the eurozone.
The EU is China’s largest trading partner, and China is the EU’s second-largest partner following the United States, according to the European Commission.
Given this, any major impact on the EU and the eurozone will also have an impact on the economies of China and the United States, which is why I closely monitor the region.
For the eurozone, in particular, there must be a longer-term strategy to fix the weaker nations.
The eurozone has 17 different countries, each with its own political and economic system, and they’re all coming together under the euro, so you know there will be problems. Unfortunately, it has not been smooth sailing since the beginning of the euro in 1999.
So we can read about how nice the recovery is in America, but ultimately, the growth of jobs and the U.S. economy will hinge on the ability of the EU to recover.
If the EU does not recover, the United States and China may be in for more pain down the road.
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