Three countries losing ground and one new prime minister

José Manuel Barroso, President of the EC, went to Rome where he met with Giorgio Napolitano, President of Italy. (EC Audiovisual Library).

José Manuel Barroso, President of the EC, went to Rome where he met with Giorgio Napolitano, President of Italy. (EC Audiovisual Library).

Three countries losing more economic grounds and one new prime minister was last week’s stock taking in Eurozone. Meanwhile the real economy and more so the Small and Medium Enterprises in the south of Eurozone were found in a much worse position during the last six months ( Oct 2012- Mar 2013), in relation to the previous period. According to a European Central Bank study about the “Financial Situation of the SMEs in the Euro Area”, the net percentage of SMEs reporting a decline in turnover increased to – 11% (October 2012 to March 2013), compared with -10% in the previous survey period (April-September 2012). Let’s follow the facts.

Three countries

Starting with Spain, Mariano Rajoy’s government revised down to – 1.3% the prediction for this year’s recession and announced two new programmes to stabilise and reform the economy. It is not yet clear if the two programmes will get the Brussels’s blessing. Spain’s unemployment skyrocketed at 27.2% in the first quarter of 2013. In the same line of events the French statistical service said that unemployment in this country reached 11.5%, up by 1.2 percentage units in February. Such an increase in two months is a very negative omen for the immediate future.

Last but not least business confidence in Germany plummeted for a second month, according to the Ifo Institute for Economic Research. The think tank said its business climate index further fell to 104.4 in April, down from 106.7 in March. This is the second month in a row that Ifo business confidence index drops. Independent commentators say that this is due to falling demand from the rest of the Eurozone, a possibility that German officials don’t seem to accept. If they did, they should have questioned at the same time Berlin’s austerity policies imposed all over Eurozone.
New Italian PM

In view of all those the only positive development in Eurozone this past week was the appointment of a new Prime Minister in Italy. Enrico Letta’s government was sworn in yesterday by the veteran President of the country, Giorgio Napolitano. Reportedly many ministers went to the Presidential palace to take the oath on foot or by a taxi, in order to convey a message for low tones, low expenditure and hard work.

Herman Van Rompuy, the President of the European Council, congratulated Prime Minister Letta on Saturday 28 April. It was a bit awkward however that Rompuy devoted a rather large part of his message to thank the until last week care taker PM Mario Monti, who was not honoured by the Italian people in the last election. Rompuy also committed another surely intentional error in the same message by saying, “I look forward to welcoming Letta at the next European Council in May, where I am sure that he will continue Italy’s role and contribution to our European project”.
The President of the European Council though must had been informed that Letta’s government was not yet approved by Italian legislators on Saturday. Consequently, Rompuy’s statement that, “I look forward to welcoming him at the next European Council in May”, could be assessed as a direct pressure by Brussels on the two Italian legislative bodies. In any case Letta’s government is expected to appear and be approved today by both Italian legislatives, the Parliament and the Senate.

European SMEs

Going back to Eurozone’s business backbone, the SMEs, which offer more than 80% of employment, the study by the ECB on their financial situation during the past six months, produced some completely disappointing results. The most important findings are presented here below.

“Developments across countries were diverse. Besides SMEs in Germany, where a net 22% (down from 27% in the previous survey period) reported an increase in turnover, SMEs in Belgium, Ireland, Austria and Finland also reported a net increase. By contrast, SMEs in Greece, Spain, Italy and Portugal reported, in net terms, the largest decrease in turnover. In line with the reported weakness in economic activity, SMEs in most euro area reported a further decline in profits, with the exception of SMEs in Germany and Austria, where profits were reported to have remained broadly unchanged (at 0% and 1% respectively, in net terms). The reported decline in profits was most prevalent for SMEs in Greece (a net 77% of respondents), Spain (60%), Italy (58%) and Portugal (64%)”.

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