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

Parlamentarians to “break up” with reality in the Google antitrust case

EU’s guidelines on net neutrality see the light although grey areas do remain

The US banks drive the developing world to a catastrophe

“Health and environment first of all”, EU says with forced optimism after 7th round of TTIP talks

Germany readies to pay for the Brexit gap in EU finance

China Unlimited Special Report: The trip to China

COP21 Breaking News_03 December: UNFCCC Secretariat Launches Forest Information Hub

Time to be welcome: Youth work and integration of young refugees

EU to negotiate an FTA with Japan

Ukrainian civil war: Is this the beginning of the end or the end of the beginning?

Turkey to let EU alone struggle with the migrant crisis while enhancing its economic ties with Russia instead?

IQ scores have been falling for decades, new study finds

“As German Chancellor I want to be able to cope with the merger of the real and digital economy”, Angela Merkel from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

EU-Turkey relations: Will Turkey manage to revive the EU accession process talks?

Armenia should take vigorous measures against entrenched corruption

Virtual Doctor: a core part of modern healthcare?

‘Jerusalem is not for sale’ Palestinian President Abbas tells world leaders at UN Assembly

G20 LIVE: G20 Leaders’ Communiqué Antalya Summit, 15-16 November 2015

Eurozone: Inflation plunge to 0.4% in July may trigger cataclysmic developments

World response to AIDS epidemic at a ‘critical juncture’

On International Youth Day the European Youth Forum calls for true youth participation

Time is running out to protect Africa’s forests

EU Commission: Growth first then fiscal consolidation

Plastic Oceans: MEPs back EU ban on polluting throwaway plastics by 2021

Chinese economy to raise speed and help the world grow

Why social working cultures are happier and more productive

Remembering Kofi Annan

Half of all mental illness begins by the age of 14

EU to increase spending and improve delivery of education in emergencies and protracted crises

An alternative view of Globalization 4.0, and how to get there

UN says ‘many humanitarian achievements’, one year after ouster of ISIL from Mosul

The movement of anti-vaccers: taking humanity back 200 years

Apple’s tax avoidance scheme remains as creative as their new iPhone

Europe turns out more jobs this summer

Politics still matter in the US but not in Europe

Mali: Presidential elections critical to consolidate democracy, says UN peacekeeping chief

Youth and Participation: are the people rising up in Spain? 


Legal Manager – 2050

How to provide health education and thus create better health systems

Road injuries leading cause of death for the young, despite safety gains: UN report

UN condemns ‘heinous’ suicide attack on education centre in Afghanistan

The shrinking Arctic ice protects us all. It’s time to act

New skills needed for medical students in Industry 4.0

Transition between education and employment: how the internship culture is threatening the foundations of our education

Eurozone: Retail sales and inflation point to recession

Why do medical curricula shouldn’t neglect the Sustainable Development Goals

Why medicine is relevant to the battle against climate change

Fisheries: Commission proposes measures to conserve stocks of deep-sea species in the North-East Atlantic

Syria: Guterres concerned over reported attacks in Idlib, calls for ‘full investigation’

Discovering Europe: Free EU rail pass for 18 year olds

Want a fairer society? This economist says he has the answer

The banks first to benefit from the new euro trillion ECB plans to print

These European countries produce the most plastic waste per person

Storms and snow in Lebanon worsen plight for Syrian refugees

Better protection against non-cash payment fraud

Can big events really go plastic-free? A water capsule made from seaweed may be the answer

‘Collective amnesia’ over causes of global financial crash – human rights expert

Superbugs: MEPs advocate further measures to curb use of antimicrobials

Why are the Balkans’ political leaders meeting in Geneva this week?

UN chief appoints Luis Alfonso de Alba as Special Envoy for the 2019 Climate Summit

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