Conflicting statistics and bad banks haunt the Eurozone

Peter Praet, member of the Executive Board and Chief Economist of the European Central Bank on the left, and Vincent Aussilloux, Director of the Department "Economics and Finance" of "France Stratégie". They both participated in the Seminar of the European Political Strategy Centre (EPSC) on the "European System of Competitiveness Authorities". Date: 15/10/2015. Location: Brussels - EC/Berlaymont. © European Union, 2015 / Source: EC - Audiovisual Service / Photo: Etienne Ansotte.

Peter Praet, member of the Executive Board and Chief Economist of the European Central Bank on the left, and Vincent Aussilloux, Director of the Department “Economics and Finance” of “France Stratégie”. They both participated in the Seminar of the European Political Strategy Centre (EPSC) on the “European System of Competitiveness Authorities”. Date: 15/10/2015. Location: Brussels – EC/Berlaymont. © European Union, 2015 / Source: EC – Audiovisual Service / Photo: Etienne Ansotte.

Last week, Eurostat, the EU statistical service, released its flash estimate of the GDP of the first quarter of 2016, finding it, in both the Eurozone and the EU28, to be 0.5% bigger in comparison to the previous period. In the fourth quarter of 2015, GDP had also grown by 0.3% and 0.4% respectively. Does this mean sustainable growth? Not necessarily, because at the same time Eurostat estimated that, in March 2016 compared with February, industrial production fell by 0.8% in the euro area and by 0.5% in the EU28. In February industrial production had also receded by 1.2% in the euro area and by 1.0% in the EU28.

Summing up, GDP in the euro area increases by less than one percent in three months, but, in contrast, industrial production loses two percentage units in two months. Is this healthy? Rather not. It’s not at all encouraging for the economy as a whole to watch its GDP increasing by some minimal decimal points of a percentage unit and at the same time suffering industrial production losses of two full units. On top of that, there is more discouraging news. Also in March, the volume of retail trade compared with February fell by 0.5% in the euro area of nineteen member states and by 0.7% in the EU28. Undoubtedly, this is another grey indicator about the health of Europe’s economy.

Industry or services?

Of course, some may claim that the European economy has been de-industrializing healthily for two or three decades now by ‘exporting’ industrial jobs to the developing world, while having hugely improved its services sector. Services currently account for more than half of euro area trade surpluses and offer an oversized part of total employment.

There are problems here too though. Even the diamond crown of the services sector, the banking industry, doesn’t seem so healthy, if at all. According to Reuters, last Tuesday, Peter Praet, executive board member and chief economist of the European Central Bank, said: “We have in the sector (banking) a severe profitability shock”. Let’s take one thing at a time, starting from the beginning.

Exporting industrial jobs

For one thing, the services sector may massively offer employment and foreign sales, but it cannot substitute the core role industrial manufacturing plays in any developed economy. Let’s take for example, the two main subsectors of services, tourism and finance. In the good times both may offer a bonanza of jobs, incomes and profits, but if the winds in the world economy become chilly, the financial industry and, up to a certain degree, the tourist sector too, instead of assets become liabilities.

This was obvious during and after the 2008-2010 crisis and may again become the case in the next crisis. Everybody has suffered from the problems with the banks, whereas the grave shock to tourism was not so well broadcasted. Unquestionably, industry suffers from the crisis too, but it always remains the developer of all important innovations in every economy. No country can be characterized as advanced, if it doesn’t possess a strong manufacturing sector, especially in the key sectors of information and communication technologies and automation.

Making China great

For a number of reasons, Europe, and more generally the entire Western economic volume, have willfully transferred industrial production to China and the rest of the developing world. At the same time, they developed their financial sector which today artificially, if not perilously, ‘produces’ a large part of GDP.

In the extreme case of London’s financial hub, which is located on just a square mile of land, it ‘produces’ almost 10% of the Britain’s GDP. Is it healthy? The recurrent financial bubbles prove that it’s not. Only a few decades ago when banks simply accepted deposits and lent out money, their net value added accounted for an utterly tiny part of national income.

Shocking banks

In mainland Europe the financial sector is not that overgrown as in Britain, but it ‘produces’ a good part of GDP. Unfortunately, euro area’s banking sector, after having shaken the Old Continent six years ago, is still posing grave problems. According to some sources, euro area banks’ non-performing loans (NPL) have reached one euro trillion. Indicatively, the four Greek systemic banks alone are haunted from a huge sum of €100 billion in bad loans, and, mind you, Greece accounts for only 2.2% of the Eurozone economy.

That’s why Praet seems bewildered with the inability of the banks to produce profits, because in this way they are unable to capitalize themselves let alone to write off a part of the NPL. So, the taxpayer will again be called to finance the bankrupt financial system with real economy’s sweat.

Praet panicking?

Preat also said that the Eurozone banks should form pan-European entities. Translating his comments about bank profitability and concentration from the constrained language of the central banks into plain words, one could think that euro area’s banking system is in great trouble or even practically bankrupt. In conclusion, Europe, by de-industrializing itself and letting its banking sector to undertake risks it cannot handle, has willingly placed over its head a hanging guillotine blade.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

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

Bram in Colombia

ECB indicates south Europeans can endure more austerity

Stronger European Border and Coast Guard to secure EU’s borders

Greece: Tsipras’ referendum victory does not solve the financial stalemate of the country and its banks

The Parliament rejects cultivating the wrong seeds of the Commission

2nd Global Consultation on Migrant Health 21-23 February 2017 in Sri Lanka

2021-2027 EU Budget: €378,1 billion to benefit all regions

Indonesia: Psychological impact on earthquake survivors turns villages into ‘ghost towns’

The Tears of lovely Memories

Migrants: ‘A powerful driver’ of economic growth, ‘dynamism and understanding’

How wealthy people transmit this advantage to their children and grand children

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

‘Unconscionable’ to kill aid workers, civilians: UN Emergency Coordinator

Commission supports normalisation in Greece through activation of post-programme framework

From UN Assembly podium, Central African Republic leader appeals for lifting arms embargo

The refugee crisis brings to light EU’s most horrible flaws and nightmares

EU: Huge surplus in the trade of services with the rest of the world

Macron’s Presidency: what the young generation’s expectations are

Parliament backs a modernised EU electoral law

EU Visa Policy: Commission welcomes agreement to strengthen EU visa rules

Good grub: why we might be eating insects soon

How to stay in shape and step up support for refugees

IMAGINATION, FACTS AND OPPORTUNITIES – THE UNLIMITED POWER OF CHINA

Everyone has ‘a moral imperative’ to uphold the rights of persons with disabilities, says UN chief

Starbucks and FIAT again under Commission’s microscope: is Europe ready to kick multinationals out of the house?

Roxane in Cambodia

The US + Britain trivialize mainland Europe, NATO and the EU

Nearly four million North Koreans in urgent need, as food production slumps by almost 10 per cent

CO2 can be a valuable raw material, not just a climate killer. Here’s how

In Chad, top UN officials say humanitarian response must go ‘hand in hand’ with longer-term recovery

These are the best cities for tech

Teenage girl’s death sentence spotlights Sudan’s failure to tackle forced marriage, gender-based violence – UN rights office

Yemen war: UN-backed talks to silence the guns due to begin in Stockholm

New Zealand will have a new ‘well-being budget,’ says Jacinda Ardern

The Commission neglects the services sector and favours industry

AI can wreak havoc if left unchecked by humans

8000 young people in the EP in Strasbourg: “a breath of fresh air for EU democracy”

These countries are home to the highest proportion of refugees in the world

Guinea-Bissau needs ‘genuinely free and fair elections’ to break cycle of instability

EU: Centralised economic governance and bank supervision may lead to new crisis

EU and Amazon cut deal to end antitrust investigation over e-books deals

More state aid to big firms, no special provisions for the SMEs

Ten UN peacekeepers killed in a terrorist attack in northern Mali

Afghanistan: UN envoy urges further extension of ceasefire with Taliban, as Eid ul-Fitr gets underway

Food for millions in Yemen at risk of rotting in key Red Sea port, warns UN

UN experts cite ‘possible exploitation’ of workers hired to clean up toxic Japanese nuclear plant

New phenomena in the EU labour market

The EU Commission fails to draw the right conclusions about corruption

Intel @ European Business Summit 2014: Better decisions now, the new business dashboard 

UN chief appeals for calm as Mali presidential election draws to a close

‘No country, no region’ can tackle global challenges alone says UN’s Mohammed

The EU Commission vies to screen Chinese investment in Europe

The European Parliament hemicycle in Strasbourg (Copyright: European Union, 2017 / Source: EC - Audiovisual Service / Photo: Mauro Bottaro)

EU Parliament sends controversial copyright law reform back to discussion

How energy infrastructure is shaping geopolitics in East Asia

How smart tech helps cities fight terrorism and crime

Ηealth’s foundation is falling apart: what can we do about it?

With 10 million Yemenis ‘one step away from famine’, donors pledge $2.6 billion

US must abide by humanitarian refugee accords: UN refugee agency

France pushes UK to stay and Germany to pay

World Health Organisation and medical students: is there any room for improvement?

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