Is Euroland about to spark a 2nd great recession?
Commentary ( 14 )
Here we go again. No sooner has the all-clear been sounded for the recovery of the global economy
than fresh problems are emerging that are set to seriously destabilize the international system.
The continuing weakening of the euro against rival currencies and fears for the financial fate of, first Greece, and now others in Euroland won’t go away. All this is prompting concern that we may be well starting down the road to a replay of the meltdowns of 2007-9. Given the obvious reality of globalization and the danger of knock-on effects from Europe, it is difficult to envisage how major problems in one region can be easily contained to spare pain elsewhere. The ripple effect is surely inescapable to all others in the G-20 grouping.
The near collapse of the euro against both the yen and the dollar suggests that it would be foolhardy for the Asia-Pacific to simply ignore the problems facing Euroland. The yen has gone from 133 to 113 against the euro this year. Any slowdowns in the EU will inevitably impact on Japan’s own rather weak growth prospects.
Yet the truth is that the EU has a whole raft of problems that to date have been getting no more than temporary and highly conditional band-aids. Greece has now got the massive massive bail-outs that were needed to save Athens from meltdown but the fear is that other members of Euroland may be about to ask for similar handouts.
Should another crisis emerge in what is being dismissively termed the Club Med zone, it is surely politically near impossible to envisage a second financial package being cobbled together by the European Central Bank, the International Monetary Fund and reluctant EU member states. Spain, Portugal, Ireland and even big hitters such as Italy may be next in the firing line if investors reckon it is time to rush for the exits.
For starters, the domestic pressures on German Chancellor Angela Merkel to withhold a further massive injection for the next beleaguered European economy would be intense. She has already talked of Europe facing its existential moment where the fate of the euro is intrinsically linked to the future of the entire European Union but German public opinion is highly wary of bailing out others. Bring back the Deutsch mark is the rallying cry of the moment, even though there is no legal arrangement presently in place for any one state to exit the 16-member Eurozone.
German resentment is clear. Its popular press has been enjoying itself lecturing the Greeks on the need to get up earlier and work harder. The fact, though, that both German and French banks would be hit hard by problems loans made to southern and eastern Europe only adds to Chancellor Merkel’s headaches.
All round Europe, the veiled talk is of which state is going to be the next one in trouble and some are even
questioning whether Germany will continue to wish to prop up Euroland. German industrialists may well disagree as they are enjoying a considerable bonus from the current collapse of the currency. Its manufacturing exports are getting cheaper and cheaper for those abroad who may now select German goods in place of Japanese or Chinese alternatives.
Europe has huge problems over vast government debt, limited growth at present and internal socio-economic issues such as high long-term unemployment that simply won’t go away. Yet Europe’s leaders have little choice but to attempt to coordinate policy and to agree that it is wiser, if unpopular at home, to support banks that are coming under pressure than to let them go under. Once major banks are allowed to fail, then all hell breaks out: depositors will create instant bank runs as they line up in the streets to get their money out and funds will be sent in seconds by the press of a button to supposedly safe havens, assuming there are any around amid the inevitable carnage.
Concern that the Eurozone’s crisis will push other continents back into recession is clear from the recent dramatic shake-out in share prices on all major international bourses and the premium to hold Club Med government bonds soars. Not surprisingly, in this climate, the Euro is a pariah with the dollar and yen seen as today’s currencies of choice in the rush to safety.
The prospect of a major financial crisis in Europe, possibly aggravated by indecision among its leaders on how best to proceed, has worldwide implications. The global economy is facing dangerous weeks and there is a real risk of a return to a second great recession.
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14 Comments
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0
whiskeysour
it's about time !!!! All the centuries of plundering other countries, you expect them to be well off ?
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tkoind2
Perhaps we are seeing the death throes of one phase of capitalism. Let's face it, the rabid consumerism and globalization schemes have made the corporates a lot of money while clearly destabilizing the global capacity to endure economic changes.
We were clearly better off when nations were more independent of each other and the collapse of one economy did not mean a dominio effect to others. Our governments, led by the same class of thinkers who run our corporate world have sold us all a story of universal prosperity through universal globalization. But as many warned, this creates risk and dangers that we have all become far too familiar with.
We have allowed companies to grow to large and powerful. We have allowed greed to drive policies that now have countries like Greece dragging and entire continent of nations down with it.
Change is happening and has been since 2007. Consumerism and credit are on the decline, energy will become more and more an issue in the economy as supplies start to finally show their decline. And the elimination of middle class stability in the developed world will continue to create uncertainty.
Capitalism as we know it and the rabid consumerism that goes it is unsustainable. A new recession may well be the harbinger of its demise.
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WilliB
tokind2:
The opposite is the case. The Europroject with its massive centralization, bureacracy, undemocratic regulations, unfunded social spending and translational bailouts (in effect state-to-state welfare) is the opposite of free capitalism. No wonder it is breaking down.
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GJDailleult
Good overview by Mr. Hilton, just a couple of points to add.
First, this statement - "German resentment is clear. Its popular press has been enjoying itself lecturing the Greeks on the need to get up earlier and work harder." Actually, the stats show that Greeks actually work longer hours, and have less personal debt than Germans. Too lazy myself to dig those stats up right now, but they are out there. The hard working Northern European vs. the lazy, want something for nothing Mediterranean types are nice, old stereotypes, but not actually true.
Second, the writer is correct to stress the role of potential bank failures in the decisions, but he is wrong to call this a second recession. It is still a continuation of the first one, nothing has been fixed, only delayed. What the world is seeing is the continuing collapse of the private banking money creation system. People and the media can delude themselves and call this a Greek Bailout or a Eurozone bailout, but it is a bank bailout pure and simple. They can also blame it on the problems of the Euro and government spending, and Americans can delude themselves that their allegedly "capitalist" system will keep them safe in their beds, unlike those "Socialist Welfare state" Europeans, but it won't .
In the end, ideology has nothing to do with anything, except scapegoating. The world has hit peak debt, the banks are collapsing, and governments and banks are finding it harder and harder to pull more rabbits out of their hats to keep the whole thing going. Simple as that. Just don't expect anybody in a position of power to be honest enough to say that, or for anybody in banking to turn off the profit taps one second before they have to.
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JeffLee
Expanding the Euro common market beyond the wealthy nations in Western Europe was an idiotic decision. Now the Germans, French, Belgiums and others will be paying the massive price of their folly.
The motivation for Euro expansion was capitalist greed, anyway - to provide a dirt-cheap and abundant labor force to undercut local wages. Expansion served the interests of the ruling elites, but has been devastating to the 97 percent of population who make up everyone else. The chickens are coming home to roost!
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paulinusa
Whether the EU holds together or not, this will end up being a tempest in a teapot and will blow over.
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SuperLib
Personally, I'm getting tired of the media asking these same "horror story" questions over and over again every day. At this point you have to wonder how much of the fear in spending is caused by the media doing it best to sell papers.
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bicultural
It's 112 yen to the euro. Pretty bad.
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tkoind2
Willib.
Absolute free capitalism is dangerous. The closest example we have seen was the greed driven meltdown caused by the housing fiasco in the US.
To say that Europe is somehow socialist, is absurd. Social programs do not mean socialism. Nor do the typical business policies of Europe constitute any system other than capitalism.
You can't show me a first world nation that is truly socialistic as it has never existed. Even the Soviets were state capitalism and not socialist.
The bottom line is that we have created an economic system that is wholely unsustainable and subject to widespread panic and speculation. This "global gambling" is the root cause of our problems and not anything to do with some vague misinterpretation of reality in an attempt to blame an imaginary socialist system in Europe that has and does not exist.
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marushka
quoteThe opposite is the case. The Europroject with its massive centralization, bureacracy, undemocratic regulations, unfunded social spending and translational bailouts (in effect state-to-state welfare) is the opposite of free capitalism. No wonder it is breaking down.unquote fully agreed, it is not a capitalism system, it is pure socialism in the worst form of it
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WilliB
tokind:
Another stereotype. Fact is the housing fiasko in the US would have never have occurred if not for socialist-type interference into the market. Government created the bubble by prescribing irresponsible behaviour and then using taxpayers money to inflate it even more. The CRA, Fanny and Freddy are at the root of the bubble. It is pretty cynical by the perpetrators to then turn around and blame others for their doings.
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TumbleDry
WilliB:
We agree but why didn't the previous administration do anything about it and let the bubble grow insanely? Why wasn't there any control on what Wall Street was doing? Why the banks weren't clever enough to see it coming?
Greed. Greed makes you blind and deaf.
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gaijinfo
Economies run in cycles. This is one of them. It will end, and another boom will come. These doom and gloom articles are all too common, as a more positive article describing the many upsides wouldn't get too many readers.
What upsides?
Not everybody is broke and unemployed, people are still paying their taxes, companies are still making products, and people are still buying them. Many companies, in fact most companies are still making a profit.
Now if the elite members of the world governments would stop spending two dollars for every dollar they collect in taxes, that might help out a bit.
But if it makes you feel better to point the finger across the aisle, go right ahead.
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GJDailleult
Ideological nonsense is not going to save you Willi B. The math of deflation doesn't care about your politics and fantasies. Banks created the bubble, and they were able to because they own your government. And they haven't stopped bringing you down.
Your wonderful capitalist economy is built on a mountain of debt, and your wonderful free market is central planning at its highest level. As for some other posters, feel free to ignore the "gloom and doom", and say its just a problem for those "Socialist Europeans".
Just like house prices go up forever (because they always have), the economy won't go down forever (because it never has). Just depends on what you mean by forever and never.
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