The Numbers For The EU Are In And They Are Bad
The Eurozone is in horrible shape. For the last few months I wrote about how the key is to watch Europe. The EU is backed into a corner and things are only getting worse.
We saw the numbers come in for the United States and we thought the second quarter was bad. A drop of almost 33% on an annualized rate.
Source
The Eurozone managed to come in much worse. Overall, the reading for the second quarter was -12.1% or 48% on an annualized rate. Germany was a solid decline of 10.1%. Spain and Italy were 18.5% and 12.4% respectively.
These number are not very encouraging. While some believe there will be a bounce back in the 3rd quarter, the southern half of the zone is dependent upon tourism. Since the travel ban is firmly in place for most of the EU, most are being warned against traveling to Spain and Italy. This is only going to harm their chance of climbing out of the hole they are in.
Even before COVID-19, the EU economy was very sluggish. The ECB has done all it can to try and stimulate things. For the past 6 years, interest rates are negative. Even this did not help.
Last week, a marathon session took place between the nations on a recovery plan. The biggest result of that meeting is that it is evident that the parties around the continent still do not agree. When trying to force so many cultures together, there is bound to be a lot of animosity.
We saw this as the recovery numbers were slashed greatly. This will only harm those countries that need it the most.
The ECB is toying with the idea of perpetual bonds. These would have no expiration and would basically have interest paid on them forever. It would avoid the notion of default and the difficulty of rolling them over if they could not be paid off.
Right now we are seeing major issues of confidence around the globe. Nowhere is this more evident than the EU. Internationally, that zone might have difficulty getting financed for a pencil sharpener. The world knows that, because of the make up of the EU, bail ins had to be used on the banks during the last financial crisis. This means that the garbage is still on the books.
This is in stark contract to the United States who bit the bullet and bailed the banks out. While many objected, the scrutiny placed upon them did make them shore up their books. At the present moment, the U.S. banking system is a lot stronger than that in the EU. Look for a country like Italy to have some banks make the headlines.
Another factor in all this is capital controls. One benefit, from the establishment's perspective, is the travel ban makes it hard for the wealthy to get their money out of the zone. Instead, people are locked in, unable to take "bags" of money out. Going through the traditional channels is drawing scrutiny. Nevertheless, a lot of money is still making it into the U.S. markets from that area.
The effects from the moves made in response to COVID-19 are crashing the global economy. That cannot be denied and nowhere is safe. Some areas are faring better than others.
Unfortunately for those in the EU, this is an area that is not faring well on a comparative basis.
I have a feeling the situation there will keep deteriorating as time passes.
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Gah, the EU is such a mess.
The issue with the EU is that there is such a diverse range of economies, all with different needs and goals, stuffed together until a “union”.
Whatever direction they choose, it will never benefit every nation within the EU. Germany’s needs aren’t the same as the needs of Spain for example.
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Very true. Plus, Germany tends to benefit more than everyone else since they are the major exporter in the region.
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I've been reading about this mess for at least 10 years, and it has only gotten WORSE nearly every year. My time on SilverDoctors.com blog was very informative, even though it was one-sided. But in reality, that one side was much closer to reality than the MSM has been for decades. We've had about 3 major back-door bailouts of the EU by the US, and I think Trump has not done one yet. Doubtful that he will allow that, as globalization is a POS concept that is seemingly antithetical to him. But we shall see, and maybe they present it as being beneficial to the USA to keep the world economy from collapsing? That would harm the USA also, but we have been insulating from this for a while.
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Trump might not be doing it but the Fed is. It often injects liquidity into markets knowing the EU is not going to be able to do it.
You are right, the situation is getting worse every year.
I believe we will see the breakup of the EU in this decade. It is an experiment that is going to fail.
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Yeah, the F'ed Reserve is supposed to be independent but both sides (L&R) were accusing or crediting Trump with "stacking the F'ed" so I'm kinda going with that. Jee-Rome Powell is trying to look independent but I think he's a Trump guy too, or has decided to work that same direction. So there's that theory, and it's getting stronger every day. RTR theory...
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EU is the biggest mess I've ever seen ... I think the only way to go is break up EU, because in this form it can never continue to exist. It makes every country in EU go bankrupt because there is too much difference between all the countries.