[GreatBriton]

More proof that Britain was right to keep the £. The countries that have the Euro are grinding to a halt.




Eurozone's growth 'is grinding to a halt'
Ambrose Evans-Pritchard, Telegraph 24/6/05

The eurozone is sliding towards a Japanese-style "liquidity trap" and may have trouble holding monetary union together unless the EU authorities take prompt action, according to a report yesterday by HSBC.

The bank warned that eurozone GDP growth was likely to "grind to a halt" as exports weaken in the second half. "The dangers of a liquidity trap are rising in the region," it said.

"Germany is perilously close to deflation. We believe it is only a question of time before there are generalised price falls in the country. This will in turn raise more questions about the rules governing EMU and the sustainability of the single currency itself."

The bank said the Netherlands and Italy were also in danger.[b/]

Italy was in "dire straits" after a "collapse" in productivity and negative growth for five out of the past nine quarters. [b]"Italy has completely failed to adapt to the rigours of the fixed exchange rate," it said.

HSBC forecast 1.1pc eurozone growth in 2005, but warned that the bloc may tip into recession as the global trade cycle turns down. Germany's exports to China are already falling.

The warnings come as fresh data showed a 3.9pc fall in Italian retail sales in April, the worst monthly drop since records began.

HSBC called on the European Central Bank to cut interest rates now from 2pc to 1.5pc before the downturn in the eurozone becomes unstoppable.

The dreaded term "liquidity trap" was used by economist John Maynard Keynes in the 1930s when traumatised consumers and investors refused to spend, pushing prices ever lower.

Deflation renders conventional monetary policy impotent as it is impossible to cut interest rates below zero (though there are other methods). Inflation-adjusted rates rise as the crisis deepens, causing mass bankruptcy.

Germany and Holland may now be slipping into this trap. Their core inflation is around 0.7pc, but on a downward glide path.

The ECB's one-size-fits-all interest rate, stuck at 2pc as the bank still struggles to cool property booms in Spain, Greece, Ireland, and parts of France, is effectively driving Germany - and Holland - deeper into slump.

The single interest rate and the Stability Pact mean that Germany, with among the lowest inflation and growth in the region, is faced with the highest real interest rate said the report.

Deflation is hard to stop once it becomes lodged in the system. Japan is now in its eight year of falling prices despite zero interest rates for much of the period.

Peter Wandesforde, HSBC's chief European economist, said the weaker euro had helped put off the day of reckoning.

"We're not looking at the doomsday scenario quite yet: but it is a question of when, not if," he said.



www.telegraph.co.uk

[djakeydd]

Ya, and here's more bellweathers that the brits were correct..

http://gonzalolira.blogspot.com/2011/07 ... urope.html

The bond markets are getting sketchy about buying due to the increasing concerns that they will never, ever get repaid, especially the so called PIIGS debt. Should get rather interesting eh wot?

[Proculation]

I never believed in a common currency for so different countries. Greece monetary policy cannot be the same as Germany. It's two totally different markets.

[CDN_PATRIOT]

The answer is simple: get rid of the Euro, fast.

-J.

[Brenda]

6 year old necro. Well done!

[fifeboy]

GreatBriton wrote:

More proof that Britain was right to keep the £. The countries that have the Euro are grinding to a halt.
blaa blaa blaa

"We're not looking at the doomsday scenario quite yet: but it is a question of when, not if," he said.



http://www.telegraph.co.uk

A source called fuckfrance. Yeah right. The German economy is expected to grow over 3% this year. Crash time for the Krauts, right. The English are expected to have growth of less than 2% Sounds like the English should start learning the words to Haydn's quartet No. 62.

For another take on the story:
http://www.planetsmag.com/story.php?id=493

Quote:

June 30 -July 13
VOL.9 ISSUE. 21HOME / STORY
Greece, China And the Euro
Gwynne Dyer
Published Thursday June 30, 01:45 pm
EUROPE: IT’S THE LEAST-BAD OPTION IN A SCARY TIME


The deadline is now July 3. That’s when the European Union’s finance ministers meet again, and by then the Greek parliament should have passed legislation mandating 28 billion euros of spending cuts and tax rises over the next five years.



If it goes through, each of the 10 million Greeks will ultimately be about 2,800 euros (US$4,000) poorer.



That’s why they’re rioting in the street these days in Athens. But unless the European finance ministers approve the plan, Greece will not get the next 12-billion euro (US$17 billion) instalment of the current EU-International Monetary Fund bail-out package in July, and it will default on its gigantic debt.



As the IMF recently warned, “A disorderly outcome cannot be excluded.” It was hinting that the euro itself might crash, taking the European or even the global economy down with it.



And yet China seems strangely unworried.



Used-car salesmen know that if you don’t give the customers credit, they won’t buy your cars. For the past decade China has operated on the same principle, lending the U.S. government money in order to keep the American dollar high and the orders for Chinese goods flowing. Beijing now holds $1.15 trillion of U.S. treasury bills — but as of late last year, it has stopped expanding its U.S. dollar holdings.



This makes sense, given that the U.S. budget deficit is 11 per cent of GDP. The U.S. is so deeply indebted that it might be tempted to inflate its way out of its problem, and nobody wants to be sitting on a pile of a trillion U.S. dollars when the value of the currency collapses.



What is astonishing is that China is now buying large amounts of euros instead. So what do the Chinese know that the pundits don’t?



They know that there is nowhere to hide. Holding euros is risky, but holding U.S. dollars is riskier, and the pound and the yen are only marginally safer. China has to put its money somewhere, and it calculates that the euro is not quite as bad a bet as it seems. Even though Greece certainly will default at some point, and probably quite soon.



Greece can never repay the 300 billion euros (US$425 billion) it owes, no matter how harsh the austerity measures that it forces on its own population. If it still had its old currency, it could make the debt shrink by printing more drachmas and inflating the currency, but it’s stuck with the euro.



Like other Mediterranean countries that joined the euro, it has a less efficient economy than the big northern European countries that dominate the currency. It used to stay competitive by letting inflation rip, thus making its exports cheaper in foreign markets. But the European Central Bank keeps the euro’s inflation rate low, so now it can’t do that.



It’s a trap. The euro’s low inflation rate meant a low interest rate, so although Greece could not keep its economy competitive, it could borrow money very cheaply. And since the euro’s value is backed by much stronger economies, the banks were willing to lend Greece large sums. Ridiculously large sums, in fact. So large that Greece could never pay them back.



Didn’t the banks realize this? Of course they did — but they reckoned that the richer countries in the euro zone would cover Greece’s debts in order to preserve the integrity of the currency. That is what is happening now.



The banks stopped lending Greece money after 2008, and the European Union stepped in to prevent a default. The enormous sums that it and the IMF are now lending Greece (at a high interest rate) are immediately handed over to the foreign banks that let the situation get so far out of hand in the first place. But the political price extracted from Greece for this bail-out is savage cuts in the country’s budget and a soaring unemployment rate.



A lot of Greeks don’t see why they should pay such a high price for this charade. They are far from blameless — they cynically milked the EU system for a long time — but their rage is entirely understandable. So at some point Greece will decide to default on its debt.



The money that the EU and the IMF are currently giving to the banks by laundering it through Greece will then have to be shovelled directly into their coffers by the financial authorities, embarrassing though that is. And Greece, using heavily devalued drachmas, will still face a long period of austerity and falling living standards, but at least it will be in charge of its own fate.



The euro will survive all this because everybody knows that the default is coming, and is quietly making arrangements to contain the damage.



China is putting its money in the right place.

I can't say what will happen, and shouldn't because I have no economics background, but I have the advantage of living in a country where a Liberal Government kept our banks in check Now, too bad they didn't keep our resource companies in our hands.

[Brenda]

Quote:

The German economy is expected to grow over 3% this year.

But what did it do 5 years ago?

[fifeboy]

Brenda wrote:

Quote:

The German economy is expected to grow over 3% this year.

But what did it do 5 years ago?

Goose Stepped into the Stratosphere?

[Psudo]

No particular country single-handedly reflects the performance of the Euro.

Euro compared to British Pound. It does look like the Pound is up from below 0.7 Euros to nearly 0.9 since 2007.

[martin14]

CDN_PATRIOT wrote:

The answer is simple: get rid of the Euro, fast.

-J.

Must easier said than done. For one, there is no mechanism for countries to
leave the Euro, it was a one-way door.

[EyeBrock]

The pound has tanked too. Last time I was there (four years ago) it was 2.15 Can $ to the pound, today's rate is 1.54. That's the lowest in my memory and it's been there for a couple of years.

The UK and the Eurozone are well fucked.

[ShepherdsDog]

let the Third worlders in and they bring the third world with them. While not all of the problem it is a big part of it.

[Brenda]

EyeBrock wrote:

The pound has tanked too. Last time I was there (four years ago) it was 2.15 Can $ to the pound, today's rate is 1.54. That's the lowest in my memory and it's been there for a couple of years.

The UK and the Eurozone are well fucked.

Yet, the exchange rate (Euro-CA$) is the same as when I moved here almost 4 years ago...

[CommanderSock]

EyeBrock wrote:

The pound has tanked too. Last time I was there (four years ago) it was 2.15 Can $ to the pound, today's rate is 1.54. That's the lowest in my memory and it's been there for a couple of years.

The UK and the Eurozone are well fucked.

The UK's economy is in the tank, but I bet you the UK will recover and be in a stronger position than before. The same goes for Germany and France.

ShepherdsDog wrote:

let the Third worlders in and they bring the third world with them. While not all of the problem it is a big part of it.

Is that why the 3rd world is outgrowing the west by massive margins?

[ShepherdsDog]

with wonderful labour laws and product safety standards for all concerned. taiwan and South Korea used to have numbers like that too, but as conditions improved for workers, product standards improved and wages went up, so too did their growth rates fall.