EU to pay a dear price if the next crisis catches Eurozone stagnant and deflationary; dire statistics from Eurostat

Wolfgang Schäuble, German Federal Minister for Finance, 1st from the left; discussion between Jeroen Dijsselbloem, Dutch Minister for Finance and President of Eurogroup, 2nd from the right, and Valdis Dombrovskis, Vice-President of the European Commission in charge of the Euro 1st from the right. The most important Eurozone dignitaries favoring economic ‘orthodoxy’ are pictured here. Date: 14/08/2015. Location: Brussels - Council/Justus Lipsius. © European Union, 2015 / Source: EC - Audiovisual Service, Shimera/ Photo: Etienne Ansotte.

Wolfgang Schäuble, German Federal Minister for Finance, 1st from left; discussion between Jeroen Dijsselbloem, Dutch Minister for Finance and President of Eurogroup, 2nd from right, and Valdis Dombrovskis, Vice-President of the European Commission in charge of the Euro 1st from right. The most important Eurozone dignitaries favoring economic ‘orthodoxy’ are pictured here. Date: 14/08/2015. Location: Brussels – Council/Justus Lipsius. © European Union, 2015 / Source: EC – Audiovisual Service, Shimera / Photo: Etienne Ansotte.

Amidst the historically worst first week of a year since stock exchange records exist, the Eurozone economy remains stagnant and appears clearly unable to offer itself and the rest of the global economy a sigh of relief. All along the first week of the New Year Eurostat kept airing quite disappointing statistics for the Eurozone economy.

On Tuesday, 5 January came the confirmation that inflation remains always trapped in the zero region. Last Wednesday, Eurostat announced that industrial producer prices fell by 0.2% in the euro area. On Thursday, 7 January it was revealed that the volume of retail trade decreased by 0.3%. Last December the EU statistical service had found that GDP growth in Eurozone remained as anemic as ever. Let’s take one thing at a time.

An aggressive selloff

All the major capital markets registered last week unprecedented losses, fueled by persisting selloffs of stocks and commodities, with oil prices plunging to as low as $30 a barrel. The Chinese stock exchanges fallout (Shanghai , Shenzhen) which is held responsible for the global selloff was a good reason explaining the global shivers, but doesn’t fully clarify the causes of last week’s crisis in all major stock markets, euro area bourses included.

This newspaper on Thursday 7 January commented that behind the capital markets selloff were the financial moguls, who were sending a message to monetary authorities. The message says that the US central bank, the Fed, should continue its super quantitative easing monetary policy by keeping its $4.5 trillion afloat in the markets all along this year for the bankers to usurp. European Central Bank’s accommodative monetary policy with €1.44tn supports the banks but is not enough.

Insatiable greed for money

Regrettably though, there is a dangerous Cach-22 here. On the one hand it’s a fact that the financial sharks – with their insatiable greed for abundant and zero cost money from central banks – are ruthlessly sucking the blood of the real economy. Nevertheless, the alternative seems equally dreadful. If the major world banks are not well fed with abundant and free cash they may default. A new financial Armageddon may then destroy what is left standing from the previous catastrophe of 2008-2010, if the central banks stop injecting free trillions to banks. This is the main built in contradiction of our brave new global financial system.

The truth is that the much needed strong global growth is not in the horizon, and without it the financial universe may collapse dragging the real economy down again with it. The misty financial constellation of hundreds of digital trillions in derivatives cannot stand upright, without real growth paying some real interest and producing some real profits.

Now that the Chinese locomotive is taking a deep breath, the developed world and more precisely the European Union is unable to take the relay, thus introducing a large dose of uncertainty in the world financial system. Regrettably, the EU didn’t manage to revive its real economy during the last five years and currently is in a quite tricky position, much worse than the US or China. In short, it’s either growth in the real economy creating new real wealth for the sharks to feast on or the central banks have to inject trillions in order to keep up the banking system going. This is what happened after 2010.

A short history lesson

Both the US and China handled much better the previous crisis than the EU and they managed to achieve an enviable upwards path during the last few years. Nonetheless, the world economy now shivers with the prospect that China’s annual growth rate may decrease below the world record highs of 7% this country has been achieving so far. In the US the overall unemployment rate is presently as low as 5.5% and decreasing further.

Explaining the above attainments, in China the source of growth was a cheap and huge labor force and in the US it was the $4.5tn the Fed injected to banks. At the same time, the corresponding variables of the Eurozone are deplorable because Eurozone failed on both accounts; stiff labor markets and stingy central bank.

Eurostat tells the truth

According to Eurostat, the GDP in the euro area rose by 1.6% in the third quarter of 2015 compared with third quarter of 2014 and by a meager +0.3% in relation to the previous quarter. And this, despite the efforts of the European Central Bank to support growth by injecting €60 billion a month into the euro area financial system and through it to the world markets. Unfortunately, that kind of quantitative easing proved largely insufficient. We will see why.

Incidentally, ECB’s President Mario Draghi last year managed to put together a €1.44trillion extraordinary monetary easing program aimed at reviving the stagnant Eurozone economy. In contrast, the US didn’t hesitate to pump much more freshly printed trillions into the economy thus managing to accelerate real growth. Of course, the Fed did it through the bankers, but there was no other way.

The ECB at least tried

On the contrary, in the ECB, all along the past few years President Mario Draghi had a very difficult time in confronting the stubborn opposition of Germany. Berlin has been monotonously rejecting any monetary boosting of the economy. This country doesn’t want the central bank to undertake monetary policies aimed at supporting employment and growth, despite the fact that every other major central bank vies to help the economy create more jobs. Berlin’s ideology is stuck in the shallow waters of financial and fiscal orthodoxy, insisting that only hard labor can lead to growth.

…But it’s not enough

Regrettably, the meager 0.3% growth in Eurozone is currently the only variable still remaining above the zero line. Retail sales and industrial producer prices were found to have fallen below the waterline, in the suffocating part of the graph. No need to underline the importance of retail sales in the overall performance of the economy.

Then it’s the industrial producer prices that have persistently followed a negative path. In difficult times this variable can be of more importance than headline inflation. The reason is that if the industrial sector, constituting the beating heart of any advanced economy, is obliged to sell its products at continuously falling prices then the economy is undermined where it hurts more, at the heart.

Germany condemns the Eurozone

All in all, Eurozone is now clearly in a much more difficult position than its competitors. It’s certain then that in a possible unfortunate event of a new financial crisis, Europe will pay a much dearer price than the US or China. Obviously, the guilty party is Germany, the leading euro area economy and main political force of the EU, by obstinately denying any monetary and fiscal measures to support job creation and growth.

By the same token, Berlin is depriving the rest of the euro area from any substantial and effective anti-stagnation action. ECB’s 1.44tn is quite insufficient, compared to Fed’s $4.5tn injection into the US, and through it, to the world economy.

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

UNICEF urges ‘transformative shift’ in family-friendly work policies to reap ‘huge’ benefits

These chefs are fighting hunger and poverty with gastronomy

We can solve climate change – if we involve women

Humanity ‘at a crossroads’ as damage to planet poses growing risk to health, UN environment agency warns

The West definitively cuts Russia off from the developed world

UN welcomes ‘milestone’ release of 833 Nigerian children from anti-Boko Haram force

EU–Canada Summit: strengthening the rules-based international order

‘Massive and protracted’ humanitarian crisis in DR Congo can be ‘beaten back’ if donors step up

On World Day to Combat Desertification, UN shines spotlight on ‘true value’ of land

The challenge to be a good healthcare professional

Why the Greeks forgave Tsipras’ pirouettes around austerity and voted again for SYRIZA

Erasmus+: a turning point in the lives of 5 million European students

Gender Science: A sneaky healthcare risk factor

7 of the world’s 10 most polluted cities are in India

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

Migration and rule of law on next ACP-EU Parliamentary Assembly agenda

MWC 2016 LIVE: The top 5 themes of this year’s Mobile World Congress

The West cannot ignore Russia; dazed Germany sitting on the fence

These countries are ranked highest – and lowest – for human development

Eurozone stuck in a high risk deflation area; Draghi expects further price plunge

Trade with the United States: Council authorises negotiations on elimination of tariffs for industrial goods and on conformity assessment

EU plans pan-European network of cybersecurity services

The US is withdrawing from a 144-year-old treaty. Here’s the context

An economist explains why women are paid less

On Youth Education: “Just a normal day in the life of a medical student”

UN experts decry torture of Rakhine men and boys held incommunicado by Myanmar’s military

The Parliament accuses core EU countries of exploiting their dominant political position

We need to rethink the way we heat ourselves. Here’s why

The US-Mexico trade deal a threat for others, Trump to single out China, Europe

What makes a good healthcare professional?

Tropical Cyclone Idai affects 1.5 million across Mozambique and Malawi, as UN ramps up response

Marco Polo’s Dream

Joris in Indonesia

From Grexit to Brexit: UK industry now says the in/out referendum is good for your health

EU, Brazil to hold high level Summit in Brasilia

Five cities short-listed to become the European Youth Capital 2017

In Gaza, UN envoy urges Israel, Palestinian factions to step back from brink of a war that ‘everybody will lose’

Trump: Hostile to Europe, voids Tillerson’s “ironclad” ally pledge

Digital IDs and the Digital Economy: the (still) missing link?

UN condemns Syrian ‘war on children’ as up to 30 reportedly killed in clashes

The Eurogroup offered a cold reception to IMF’s director for Europe

Dangers of poor quality health care revealed ‘in all countries’: WHO report

MWC 2016 LIVE: Zuckerberg warns mobile industry not to ignore the unconnected

Discovering Europe: Free EU rail pass for 18 year olds

UN chief saddened at news of death of former US President George H.W. Bush

Trump fines China with $50 billion a year plus some more…

Wind farms now provide 14% of EU power – these countries are leading the way

Parliament adopts new rules for short-stay visas

Migration crisis update: Greece could probably say goodbye to Schengen really soon

Western Balkans: MEPs take stock of 2018 progress

The future of energy in Puerto Rico is renewable

Silicon Valley can do more to achieve the #GlobalGoals

Brexit update: Leave campaign leads race but undecided voters will determine the outcome of the EU referendum

Food system failures in our age of abundance

Why Trump’s tariffs are good news for US garlic farmers

5 ways to go green in your own kitchen

UN affirms ‘historic’ global compact to support world’s refugees

Forced pregnancy in Italy violated ‘woman’s human right to health’, UN experts rule

On their epic journeys, migratory birds connect nations and inspire people, UN says on World Day

100 years after Polish independence, 5 reasons to be cheerful for the future

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