South Eurozone countries threatened by rising borrowing cost and expensive euro

Angela Merkel, German Federal Chancellor, Mario Monti, Italian Prime Minister and Minister for Economy and Finance ad interim, and José Manuel Barroso, President of the European Commission (from right to left). (EC Audiovisual Services).

Angela Merkel, German Federal Chancellor, Mario Monti, Italian Prime Minister and Minister for Economy and Finance ad interim, and José Manuel Barroso, President of the European Commission (from right to left). (EC Audiovisual Services).

A strange combination of the expensive euro (undermining external competitiveness) and worsening market conditions for sovereign borrowing by south European countries, are increasing the pressures on the four crisis stricken Eurozone member states, Greece, Spain, Portugal and Italy. In this way the positive developments of dropping risk premiums that prevailed since the beginning of the year on south European debt, turned yesterday to the negative area, with investors demanding now larger yields for their placements on such debt. Let’s take one thing at a time.

It seems that what changed this week is the political scenery in Italy and Spain. With the Italian elections approaching, Silvio Berlusconi is seen every-day more and more aggressive promising greener grass. This past weekend he didn’t hesitate to promise reductions of a large number of taxes and even said he will increase salaries in the public sector in their pre-crisis levels, if elected. He says he will get the money by taxing the rich.

In Spain the political horizon is also darkened with the personal problems of Prime Minister Mariano Rajoy, after the allegations that he was illegally receiving payments from his party coffers, while in opposition. Of course Rajoy denied everything. However the negative climate in the country against all main stream politicians and the widely held view about uncontrollable political corruption, have turned the public opinion against the government. The leader of major opposition socialist party actually asked the Prime Minister to step down. Rajoy rejected any talk about resignation, speaking from Berlin where he is on two-day official visit.

Dearer borrowing

In such a climate in the two heavyweights of South Europe, the financial markets started having again second thoughts about risks. Naturally the borrowing cost in the two smaller countries was dragged upwards just by contagion. And all that despite the fact that Greece announced a primary surplus in the government budget exercise for 2012, for the first time after many decades. On the other corner of South Europe, Portugal doesn’t seem to encounter any major political problems in applying a multi-year austerity plan, but again here too borrowing cost has increased.

It was very interesting to watch yesterday in all and every European market the pressures on the region’s sovereign debt paper, leading to higher risk premiums across the board. The question is however if this tendency will gain more momentum or investors will stop and wait for the Italian elections results and the Spanish government problems to subside.

More probably however investors will continue watching the public opinion pools in Italy as well as the way Rajoy manages his personal problem. If Berlusconi increases his attraction to voters, borrowing cost will continue on the current upward course. In short if the Italians want more Berlusconi, they have to pay dearly for him.

Tourism will suffer

Apart this discouraging political outlook in the European South,  the four south-most Eurozone members states have to cope with another negative prospect, which may last much longer than the political difficulties; the expensive euro. The single European money has being continuously appreciating from the beginning of this year.

Given that all four South Eurozone countries depend heavily on summer season tourist incomes from third country visitors, the expensive euro is cutting down their prospects for an exit from the recession, they are all in. If it was not for the political uncertainties in North Africa and the Middle East, the expensive euro could have ruined the season for the entire south European tourist industry. Even holidaymakers from the other Eurozone countries could choose North Africa this summer for their vacations, using the advantage of their high value currency to get good deals outside the single money zone.

The EU’s South however cannot count on the security risks of other to boost its prospects. Berlin has to do what it takes to keep the euro parities at reasonable levels. And this is neither difficult nor unpopular. Germany’s political and business leadership must simply accept, that the millions of their working compatriots deserve better pay. In this way the euro will become a softer money and the rest of Eurozone will gain from a stronger demand for goods and services.

 

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Athens searches frantically for a new compromise between politics and economic reality

Scientists are using machine learning to unlock the mysteries of long-dead languages

5 ways to swim, not sink, as part of a ‘liquid workforce’

Council Presidency: Floundering with the EU 2014 budget

Top UN officials strongly condemn ‘horrible terrorist act’ in Nairobi

How the future of computing can make or break the AI revolution

Adriatic Sea: MEPs adopt multiannual plan for fisheries

COP25: MEPs push for CO2 neutrality by 2050

UN health agency launches week of action to ban lead paint

Hostilities in Syria’s southwest, mean cuts in vital aid across Jordanian border: Senior UN official

Greece begins a new chapter following the conclusion of its stability support programme

FROM THE FIELD: Urban Mexico moves toward better livelihoods, cleaner cities

Antisemitism, intolerance, can be unlearned, Guterres tells New York commemoration

The importance of Yellow September and suicide prevention in Brazil

ECB’s first flight in Eurozone’s banking universe will be just a reconnaissance

Why protesters disrupted London Fashion Week

‘Undersea gardeners’ are restoring Jamaica’s lost coral reefs

The issue of mental health for modern young doctors

Berlin cannot dictate anymore the terms for the enactment of the European Banking Union

Promoting Primary Health Care to the Young Health Workforce: a new approach

How to harness data to tackle rare diseases

Parliament commemorates the victims of the Holocaust

At this ‘critical moment’, UN chief urges anti-corruption conference to adopt united front

5 unexpected ways bicycles have made the world a better place

EU Justice Scoreboard 2018: justice systems’ key role in upholding the rule of law and EU values

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Foreign direct investments the success secrete of Eurozone

Exchanges of medical students and the true understanding of global health issues

Yemen conflict: ‘Fragile’ hopes rise, as violence decreases and life-saving humanitarian funding surges

Ukraine: Is there a political force able to undo the division?

Africa’s shrinking lake shows the impact of climate change on women and indigenous people

The US will impose tariffs on Mexico, says President Trump

Will CETA be implemented after eight long years or it will be vetoed by the EU citizen?

With field schools in Kenya, UN agriculture agency teaches techniques to combat drought

Tsipras bewildered with Berlin’s humiliating demands; ECB expects political sign to refinance the Greek banks

WHO and UNICEF in campaign to protect 1.6 million in Sudan from cholera

EU trade agreements: delivering new opportunities in time of global economic uncertainties

MEPs back update of rail passenger rights across EU

How to outsmart bias when you’re recruiting

Is the EU denying its social character favouring a banking conglomerate?

WEF Davos 2016 LIVE: “Chinese economy has great potential, resilience and ample space for policy adjustment”, China’s Vice President Li Yuanchao reassures from Davos

Sudan: Amidst deaths, injuries, imprisonments, UNICEF stresses children’s protection ‘at all times’

Here are three ways the private sector can act as a sustainability catalyst for Globalization 4.0

Pakistan-India crossing is a ‘Corridor of Hope’, UN chief says, wraps up visit with call for interfaith dialogue

Despite progress, companies face gender equality ‘backlash’: UN business body

More than 750 million people around the world would migrate if they could

Japan’s population is shrinking by a quarter of a million people every year

It’s time to end the stigma around mental health in the workplace

A new roadmap for corporate climate governance

European Labour Authority ready to start working in October as decision is taken on new seat

Any doubt?

This app lets you plant trees to fight deforestation

World response to AIDS epidemic at a ‘critical juncture’

One Health approach to combating Antimicrobial Resistance – how can professionals from different backgrounds unite in this common fight?

Don’t compare data to oil – digitization needs a new mindset

5 reasons to protect mangrove forests for the future

The “Legend of the Sun” wishes you Happy Chinese New Year 2015 from Brussels

Sudan: top UN official demands cessation of violence and rape against civilians by security forces

State aid: Commission approves around €36 million Romanian rescue aid to state-owned flag carrier TAROM

A new kind of company is revolutionising Africa’s gig economy

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s