Eurozone: New data show recession and debt closer to explosion

Press conference by Olli Rehn, Vice-President of the European Commission on the spring economic forecasts, (EC Audiovisual Services).

Press conference by Olli Rehn, Vice-President of the European Commission on the spring economic forecasts, (EC Audiovisual Services).

Yesterday the world was informed that Eurozone is stuck into recession, after the Eurostat, the EU statistical service, announced that the euro area GDP receded once more during the first quarter of this year. However, this was not news for those who follow closely what is happening in the single euro money zone. Only some days ago Eurostat had released information on the developments in the front of business investments and profits during the last quarter of 2012. Data showed clearly a negative turn. Quite predictably a fall in investments and profits is almost instantly translated into losses of production and incomes during the next quarter.

According to data released by Eurostat, the investment rate was 19.6% in the fourth quarter of 2012 compared with 19.7% in the previous quarter in the EU of the 27 member states. These data come from a detailed set of seasonally adjusted quarterly European sector accounts produced and released by Eurostat and the European Central Bank (ECB).

Falling profits

As for the business profit share, it fell once more both in the EU27 and the euro area. According to Eurostat, “in the EU27, the business profit share was 37.3% in the fourth quarter of 2012, compared with 37.6% in the third quarter of 2012. In the euro area the profit share was 37.7% in the fourth quarter, compared with 38.0% in the previous quarter”.

All those negative statistics are not new for Europe. Independent sources estimate that Eurozone was in recession for at least 18 months to March 2013. Given that short-term indicators are also negative, it is more than certain that the negative trends are still present in this second quarter of the year. On top of that the President of the European Central Bank, Mario Draghi, in a recent Press conference where he announced the reduction of ECB’s basic interest rates, said that Eurozone expected to recede this year and estimate the fall of production and incomes at 0.5% of the GDP.

If nothing changes on policy level, Eurozone is not expected to return to sustainable and noticeable growth in the foreseeable future. Even the strongest economy of the area, Germany, is currently entering in a stagnation period. Given that the entire South of the Old Continent is constantly losing large parts of its production and incomes and France is in negative grounds for months, there is no light at the end of the tunnel. Even Holland is now in recession.

Good news from capital markets

As for the latest positive developments in the capital markets, with the falling interest rates and the growing investor confidence vis-à-vis the debt paper of countries like Greece, Italy, Spain and Portugal, this has to be explained by the growing belief that Eurozone is not to break up. It is just a financial market change of attitude, which only remotely can help growth under more aggressive policy measures. In reality investors are convinced that the ECB will not let the debt paper of the over-borrowed Eurozone countries collapse. This means nothing however for the real economy because it just helps those countries to recycle, if not increase, their debts. Moreover market can change their attitude easily with the first cloud in the blue Mediterranean sky.

Coming back to Eurostat, its yesterday’s announcement was quite discouraging for the short-term future of Eurozone, let alone the long-term misty horizon. The EU statistical service says that the “GDP in the euro area (EA17) fell by 0.2% and by 0.1% in the EU27 during the first quarter of 2013, compared with the previous quarter, according to flash estimates. In the fourth quarter of 2012, growth rates were -0.6% and -0.5% respectively”. The fall was understandably much larger on an annual base. Compared with the same quarter of the previous year, Eurostat found that, the “seasonally adjusted GDP fell by 1% in the euro area and by 0.7% in the EU27 in the first quarter of 2013, after -0.9% and -0.6% respectively in the previous quarter”.

All in all there is not one economic analyst predicting that Eurozone can return soon to growth which can be felt in the labour market, under the current policy conditions. Alas the prediction that the single money zone can probably just reverse the fall of its incomes and production some time in 2014, will not be enough to even stop the unemployment rates for growing.
If the betterment in the financial markets, which offers a good reduction of debt service, is not seen as an opportunity to relax the severe austerity imposed all over Eurozone, the debt will suffocate an always receding economy. If the drop in the debt servicing cost proves not enough to revitalize the economies, then more borrowing will prove inevitable. That will prove a critical moment and markets will probably stop supporting the increasing Med debt, including France.

Not to forget that even during the past two crisis years, with interest rates in the South of Europe occasionally reaching not sustainable levels, sovereign debt kept increasing. In short, either way the volume of debt which seems already rather unsustainable will inflate further and call for a good haircut at least on the debt paper held by other sovereigns or central banks. As a result, a haircut may appear unavoidable and only growth can sweeten its bitter taste.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

The world’s e-waste is a huge problem. It’s also a golden opportunity

Is it true that the G20 wants to arrest tax evasion of multinationals?

Climate change is a security threat. We must act now

Youth Entrepreneurship Issue of the month: JEN, organisers of JADE October Meeting, on why JEs should come together

Anti-vaccination scaremongering: What should we know about anti-vaccine argument?

Connectivity and collaboration in the ICT industry: the key to socio-economic development

We can’t rid Asia of natural disasters. But we can prepare for them

A bad marriage can be as unhealthy as smoking and drinking

Multiculturalism, social diversity and tolerance

France and Germany can’t reach consensus regarding EU’s top jobs

This is why mountains matter more than you think

Why is the World Health Organisation so much needed?

Syrian Government’s ‘different understanding’ of UN role, a ‘very serious challenge’ – Special Envoy

Human rights: breaches in Russia, the Rakhine State and Bahrain

3 ways to fight stress at work

What UK and EU risk if Brexit “wins” these elections

Human rights breaches in Hong Kong, Russia and at the US-Mexican border

UN, world leaders, condemn Sri Lanka terrorist attacks targeting churches, hotels, which leave more than 200 dead

Monday’s Daily Brief: Independent UN experts on Myanmar, UN chief renounces attacks in US, Libyan airport violence, UN spokesperson on Kashmir, and FAO and Italy on development

Artificial Intelligence and Machine Learning: “Am I a real Boy?”

Cleantech innovation is being stifled. Here’s how to unlock it

Tunisia wants to change inheritance rules to boost gender equality

Resisting EU budget cuts

Italy solves the enigma of growth with fiscal consolidation: The Banking Union

Norway initiates WTO dispute complaint against US steel, aluminium duties

This is what Belgium’s traffic-choked capital is doing about emissions

ILO: Unemployment to increase by 8.1 million in 2013-2014

Tuesday’s Daily Brief: hate speech, dementia, Libya and Yemen, human rights in Brazil and Lebanon

Implementation of tax transparency initiative delivering concrete and impressive results

The next talent opportunity for the digital workplace? Neurodiversity

MWC 2016 LIVE: Industry looks to reduce mobile gender gap

What cryptocurrencies will do to the integrity of politics

How to create responsible supply chains in the age of globalization 4.0

G20 LIVE: “Our response needs to be robust…otherwise we will only find the fire we are trying to put out”, UN Secretary General Ban Ki-moon just lit up G20 in Antalya Turkey

Member States agree to Commission proposal to support Irish beef producers impacted by market uncertainty

Darfur: Inter-communal tensions still high despite improved security, Mission head tells Security Council

5 facts you should know about the world’s refugees

UN must bring more women police officers into the fold to be effective – UN peacekeeping official

Antitrust: Commission imposes binding obligations on Gazprom to enable free flow of gas at competitive prices in Central and Eastern European gas markets

This Japanese TV show about work-life balance is a big hit – here’s why

The new North America trade deal USMCA punishes German cars

It’s time for financial services to embrace the Fourth Industrial Revolution. Here’s why

Traditional knowledge at ‘core’ of indigenous heritage, and ‘must be protected’, says UN Forum

UN rushes to deliver aid as key Yemeni port city is ‘shelled and bombarded’

NEC @ European Business Summit 2014: The Digitally Enabled Grid

INTERVIEW: Poverty, education and inclusion top new General Assembly President’s priority list

Eurozone: How can 200 banks find €400 billion?

A sterilised EMU may lead to a break up of Eurozone

More ‘political commitment’ needed urgently for HIV prevention: UNAIDS chief

Overseas investment falling, developing countries largely unscathed: UN trade agency

INTERVIEW: ‘Defend the people, not the States’, says outgoing UN human rights chief

Ebola fight ongoing amid evidence of ‘several massacres’ in DR Congo’s Ituri province

Four lessons for a successful switch to value-based healthcare

Data capture, not disclosure, is the way to meet our climate goals

Ahead of State of the Union the European Youth Forum highlights lack of action on youth employment

How populist and xenophobic movements in the EU tear apart European businesses and startups

On Google antitrust case: “Let’s face it, some companies want to hurt Google and it goes as simple as that”

This is the state of the world’s health, in numbers

UN court increases sentence of former Bosnian-Serb leader to life imprisonment

EU makes key TTIP document public as protests get louder

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