Europe’s depression worsens


As I mentioned earlier in the week Italy may have a new parliament but there is very familiar person who appears to be pulling the strings, and how long such an arrangement can last is questionable. Over the last couple of days Silvio Berlusconi has placed several demands on the new PM including a re-negotiation of Italy’s deficit commitments and abolition of some taxes. So far the taxes have stayed, but Berlusconi has already made rumblings about withdrawing support while the new PM heads to Berlin attempting to run with Berlusconi’s anti-austerity agenda:

Italy’s prime minister has urged the European Union to drop its insistence on austerity policies and promote initiatives fostering growth instead.

Prime Minister Enrico Letta said on Tuesday in Germany that “it is absolutely necessary” to foster growth and job creation to help the 27-nation bloc’s stalling economies “so that our citizens see Europe not as something negative but as something positive”.

Letta’s visit to Berlin for talks with Chancellor Angela Merkel marked his first official trip abroad and came only hours after his winning approval by the Senate in Rome.

Merkel said she saw no contradiction between budgetary discipline and the goal of economic growth.

“For us in Germany, budgetary consolidation and growth are not at cross-purposes but have to go hand in hand to lead to greater competitiveness and therefore more jobs,” conservative Merkel told a joint news conference ahead of private talks with centre-left Letta.

As I’ve spoken about previously, this is going to go nowhere in a German election year. We may see some concessions in Q4 but until then Mr Letta isn’t likely to see much in the way of help. In my opinion he would have been far better of taking a trip to Paris and/or Amsterdam to muster some support before heading directly for Merkel’s door.

In the meantime, while the Italians attempt to re-negoitate their contract with the EU, the bad news just keeps coming out from the rest of the periphery:

Spain is heading for another year of recession after figures showed GDP contracted in the first three months of 2013 amid a widespread slowdown in consumer spending, rising unemployment and predictions of further declines in house prices.

The economy shrank by 0.5% in the first quarter, according to Spain’s national statistics office, in line with government predictions that a recovery will be delayed until the end of the year.

One analyst said the economy, which started to decline in the summer of 2011, was on course to repeat last year’s 1.9% contraction before stabilising in 2014.

The gloomy outlook followed a raft of weak figures showing that Spain remains in the grip of a deep recession. A report by the credit ratings agency Standard & Poor’s showed that the housing market continued to be a drag on growth. House prices have already fallen by more than 40% in some areas, sparking a wave of repossessions. Tens of thousands of families are unable to sell their homes while they remain in negative equity.

You can head over to Tinsa to check out the house price movements. The Mediterranean coast has seen falls of over 40% from peak while the average of the other areas is close to 30%. Either way these are punishing numbers and the loss of private sector wealth attributed to them is a massive drain on the national economy. The troubling thing is that house prices aren’t just still falling, but appear to be accelerating downwards in the latest figures. I’ve discussed previously what I see as balance-sheet recession dynamics in Spain and it is little wonder that the Spanish government continues to revise down revenues and economic estimates. Not so long ago Q3 2013 was the period where everything would bottom and begin to get better in the EuroZone, but it appears that we’ve finally seen the end to that delusion with the Spanish government now predicting this years deficit to be 6.3% of GDP and nothing that comes close to meeting the existing treaties until at least 2016.

Of course you only have to look at the latest employment figures from EuroStat to understand that nothing is getting any better for the south Europeans:

The euro area1 (EA17) seasonally-adjusted unemployment rate3 was 12.1% in March 2013, up from 12.0% in February4. The EU271 unemployment rate was 10.9%, stable compared with February. In both zones, rates have risen markedly compared with March 2012, when they were 11.0% and 10.3% respectively. These figures are published by Eurostat, the statistical office of the European Union.

Eurostat estimates that 26.521 million men and women in the EU27, of whom 19.211 million were in the euro area, were unemployed in March 2013. Compared with February 2013, the number of persons unemployed increased by 69 000 in the EU27 and by 62 000 in the euro area. Compared with March 2012, unemployment rose by 1.814 million in the EU27 and by 1.723 million in the euro area.

Among the Member States, the lowest unemployment rates were recorded in Austria (4.7%), Germany (5.4%) and Luxembourg (5.7%), and the highest in Greece (27.2% in January), Spain (26.7%) and Portugal (17.5%).
Compared with a year ago, the unemployment rate increased in nineteen Member States and fell in eight. The highest increases were registered in Greece (21.5% to 27.2% between January 2012 and January 2013), Cyprus (10.7% to 14.2%), Spain (24.1% to 26.7%) and Portugal (15.1% to 17.5%). The largest decreases were observed in Latvia (15.6% to 14.3% between the fourth quarters of 2011 and 2012), Estonia (10.6% to 9.4% between February 2012 and February 2013) and Ireland (15.0% to 14.1%).


That blue line just keeps heading for the moon.

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  1. Remove the Euro from Spain, and house – all business – prices in Pesetas will rocket. Sure the existing debt will cost more to service ( unless there’s a default!), but serviced it will be, in Pesetas….

    • If it can’t be paid back, it wont be paid back. All I can see is increasing tension, economic stagnation/depression. War.

    • Giordano Bruno

      When you revert to pesetas, just pay it back in pesetas – that’s the beauty of it.

      • (Giordano…Did I miss a sarc button there? I hope so. My humour isn’t faring too well just now!)

        Yes but if nobody wants your pesetas what do you use to buy anything? What do you use to buy food?

        This tripe that’s around that all you have to do is print your own currency and everything is hunky dory is just plain BS.

  2. rob barrattMEMBER

    The Euro can’t last, at least in Southern Europe, France is a head case… A whole bunch of Weimar republics up ahead, populist governments and protectionism. Of course, that will hit China hard, followed very swiftly by you know who.
    Is there another planet somewhere I can invest in?

  3. We were in Spain briefly in January,reading excerpts from local papers.
    Housing was under discussion-a large housing estate in Madrid(?400 houses). There were about 6 legal owners and all the other houses are occupied by squatting families. The houses were being finished off,connected to services etc,and they had even formed a residents association. A few people had tried to pay rent/rates, but the building firm and developer had both gone into liquidation,and were untraceable. Many of the tenants had lost properties of their own and defaulted on mortgages.
    General comment in the article seemed supportive of this approach,and they certainly weren’t being harassed by local authorities. The debt that must be around is effectively defaulted,leading to unacknowledged losses for some party.
    The tone of the article suggested this could be an increasingly common scenario.

  4. Alex Heyworth

    “The Mediterranean coast has seen falls of over 40% from peak while the average of the other areas is close to 30%.”

    Cue a flood of UK retirees who can now afford a nice place in the sun. Their spending should provide a nice little boost to the Spanish economy, at the expense of the UK.

    • Alex,

      They are already there and sufferring the pain big time along with the Spaniards. The sun has only so many attractions when poverty dominates.

      • Alex Heyworth

        Why would they be suffering pain? Doesn’t the UK government keep on paying their pensions as usual?

    • Giordano Bruno

      Most of the Spanish property boom was Brits – who’ve lost their investment.

      Because, you know, the British housing market is booming. /s

      • Alex Heyworth

        I realize a lot of Brits who invested in holiday places will have lost money, worse of course if they borrowed for it.

        But those who buy in now, or perhaps just a little further down the track, can get in at a very reasonable price. If they have an indexed pension from the UK government they might be very pleased to escape soaring energy costs in the UK, not to mention the miserable winters they have endured recently.

  5. Something is going right in Estonia;

    “Estonia had the lowest government debt measured as a ratio to gross domestic product (GDP) in the European Union last year, standing at 10.1 percent of GDP as of year-end, Eurostat said on Monday.”

    “Estonia also had the lowest government deficit in percentage of GDP, measuring 0.3 percent of GDP and putting the country second only to Germany, which had a government surplus of 0.2 percent. “