Thread: Europe & the Global Crisis

Here is an article on Britain. I'm putting it here.

Britain showing signs of heading towards 1930s-style depression, says Bank

Britain is showing signs of sliding towards a 1930s-style depression, the Bank of England says today for the first time.

By Edmund Conway, Economics Editor

16 Mar 2009

The country is displaying early symptoms of being trapped in a so-called “debt deflation trap” where families find themselves pushed further and further into the red every month, according to a Bank report published today.

The stark warning will cause serious concerns, since it was this combination of falling prices and soaring debt burdens that plagued the US in the 1930s.

The Bank is using its Quarterly Bulletin to highlight the threat posed to the economy by deflation – where prices fall each year rather than rise.

Although inflation is currently in positive territory, it is expected to become negative in the coming months.

The Bank is worried that this may combine with high levels of indebtedness to squeeze families further.

It says that families with high debts could fall prey to the debt deflation trap. This means that the cost of their debts, which are fixed, would rise compared to average prices throughout the economy. While inflation erodes debts, deflation makes them relatively higher.

The Bank’s paper suggests that Britain is particularly at risk because there is a high proportion of families with significant levels of debt, and many of them are on fixed mortgage rate, which means they will not benefit from rate cuts.

Link & Entire: Britain showing signs of heading towards 1930s-style depression, says Bank - Telegraph

Paris (France) has always seemed to have more protests, and vandals breaking windows is a small incident.

However.....with the times we are in, is this just media hyperbole, or a sign of things to come in Western and Eastern Europe?

Hurt by Economy, Europeans Vent Their Anger

Jacques Brinon/Associated Press
French employees of the German tire maker Continental burned tires at a demonstration in Paris on Wednesday.


By JULIA WERDIGIER and MATTHEW SALTMARSH
Published: March 25, 2009
LONDON — Tempers are flaring across Europe as the economic pain deepens and more people lose their jobs.
Skip to next paragraph Related

Michel Euler/Associated Press

Just ask Fred Goodwin, the former chief executive of the ailing Royal Bank of Scotland, whose house and car were vandalized early Wednesday. Or Luc Rousselet, the manager of a 3M factory in France, who was barricaded in an office for a second day by workers demanding better severance packages for 110 employees who are being laid off.

While such instances are scattered so far, the angry mood threatens to overshadow the Group of 20 summit meeting next week in London, where world leaders hope to find approaches to the financial crisis.

Several protests are planned in London’s financial district, and the police are warning financial institutions to bolster security, cancel unnecessary meetings and keep employees inside. Bankers are being advised to wear “casual clothing” so they do not attract attention.

“A recession has all sorts of knock-on effects,” said Christopher Husbands, a professor of sociology at the London School of Economics. “Crimes go up, relationships break down and there are instances of civil disturbance.”

A nationwide strike in France last week, which drew at least 1.2 million people, was peaceful. But the government remains worried about an outbreak of violence similar to that last month in Guadeloupe, a French overseas territory, and in Greece in December.

The sense of frustration among those who lost their jobs or savings or a large part of their pension funds is fueled by reports of executives continuing to reap large rewards, as demonstrated by the outrage in the United States over bonuses paid at the American International Group. Europeans have long pointed out that pay packages of top executives in the United States are simply out of whack with the rest of the world, but their hopes of avoiding a public outcry were doused by the latest reports of inflamed local passions.

In Scotland, vandals smashed at least three windows on the ground floor of Mr. Goodwin’s house in an affluent suburb of Edinburgh and damaged a black Mercedes S600 parked in the driveway. Mr. Goodwin was not in the house at the time and no one was hurt, but the incident alarmed Britain’s business community.

Link & Entire: http://www.nytimes.com/2009/03/26/bu...r.html?_r=1&hp

I wouldn't make too much of the French - going on strike and setting fire to cars is a national pastime.

Britain, on the other hand, is seriously in the shit. On a per capita basis, the bailouts have been bigger than anywhere else in the OECD. To make matters worse, governments - both Labour and Conservative - have allowed/encouraged the complete hollowing out of industry so the country has become ludicrously dependent on the City and on consumer spending. Also, total debt - private, government, and corporate - is now running at something like 500% of GDP. I don't think the future's looking too good there.

This is a steep drop. Declining industrial production and the Eastern European banking issue may mean a tough road ahead.

June 12 (Bloomberg)

-- European industrial production dropped by the most on record in April as the worldwide recession ravaged demand for goods.

Production in the euro region plunged 21.6 percent from a year earlier, the most since the data series started in 1986, the European Union’s statistics office in Luxembourg said today. Economists expected a 19.8 percent decline, according to the median of 14 estimates in a Bloomberg News survey. From March, output declined 1.9 percent.

The global economy will contract for the first time since World War II this year as the fallout from the financial crisis leads companies to scale back production and run down stocks, the World Bank predicts. The European Central Bank this month kept its benchmark interest rate at a record-low 1 percent and will soon buy bonds in a bid to improve the flow of credit.

“The region has simply been hammered by the downturn in global demand and hampered by the run-up in the euro,” said Peter Dixon, an economist at Commerzbank AG in London. “We see interest rates on hold right through next year. The euro zone has been especially badly hit compared to the more service- oriented economies of the U.K. and the U.S.”

Link & Entire:
http://www.bloomberg.com/apps/news?p...d=aik2bxsFFvWM[/quote

Good info, MM. BKKAndrew wasn't wrong, was he?

Iceland says goodbye to the Big Mac. 3 stores. No big deal, but it's a small pieces, among many different pieces - symbolic pieces - of the global economic slowodn puzzle.

Link: Iceland says goodbye to the Big Mac - Yahoo! News

By GUDJON HELGASON and JANE WARDELL, Associated Press Writers Gudjon Helgason And Jane Wardell, Associated Press Writers

REYKJAVIK, Iceland – The Big Mac, long a symbol of globalization, has become the latest victim of this tiny island nation's overexposure to the world financial crisis.

Iceland's three McDonald's restaurants — all in the capital Reykjavik — will close next weekend, as the franchise owner gives in to falling profits caused by the collapse in the Icelandic krona.

"The economic situation has just made it too expensive for us," Magnus Ogmundsson, the managing director of Lyst Hr., McDonald's franchise holder in Iceland, told the Associated Press by telephone on Monday.

Lyst was bound by McDonald's requirement that it import all the goods required for its restaurants — from packaging to meat and cheeses — from Germany.

Costs had doubled over the past year because of the fall in the krona and high import tariffs on imported goods, Ogmundsson said, making it impossible for the company to raise prices further and remain competitive with competitors that use locally sourced produce.

A Big Mac in Reykjavik already retails for 650 krona ($5.29). But the 20 percent increase needed to make a decent profit would have pushed that to 780 krona ($6.36), he said.

That would have made the Icelandic version of the burger the most expensive in the world, a title currently held jointly by Switzerland and Norway where it costs $5.75, according to The Economist magazine's 2009 Big Mac index.

The decision to shutter the Icelandic franchise was taken in agreement with McDonald's Inc., Ogmundsson said, after a review of several months.

McDonald's, the world's largest chain of hamburger fast food restaurants, arrived in Reykjavik in 1993 when the country was on an upward trajectory of wealth and expansion.

The first person to take a bite out of a Big Mac on the island was then Prime Minister David Oddsson. Oddsson went on to become governor of the country's central bank, Sedlabanki, a position that he was forced out of by lawmakers earlier this year after a public outcry about his inability to prevent the financial crisis.

Lyst plans to reopen the stores under a new brand name, Metro, using locally sourced materials and produce and retaining the franchise's current 90-strong staff.

Ogmundsson said it was unlikely that Lyst would ever seek to regain the McDonald's franchise with Iceland still struggling to get back on its feet after the credit crisis crippled its overweight banking system, damaging the rest of its economy, last October.

"I don't think anything will happen that will change the situation in any significant way in the next few years," Ogmundsson said.

It is not the first time that McDonald's, which currently operates in more than 119 countries on six continents, has exited a country. Its one and only restaurant in Barbados closed after just six months in 1996 because of slow sales. In 2002, the company pulled out of seven countries, including Bolivia, that had poor profit margins as part of an international cost-cutting exercise.


AP Business Writer Jane Wardell reported from London.
__________________

I want to know what are the potential ramifications for the EU and/or the Euro, if any?

Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance.

Euro membership blocks every plausible way out of the crisis, other than EU beggary. This is what happens when a facile political elite signs up to a currency union for reasons of prestige or to snatch windfall gains without understanding the terms of its Faustian contract.

When the European Central Bank's Jean-Claude Trichet said last week that certain sinners on the edges of the eurozone were "very close to losing their credibility", everybody knew he meant Greece.

The interest spread between 10-year Greek bonds and German bunds has jumped to 178 basis points. Greek debt has decoupled from Italian debt. Athens can no longer hide behind others in EMU's soft South.

"As far as the bond vigilantes are concerned, the Bat-Signal is up for Greece," said Francesco Garzarelli in a Goldman Sachs client note, Tremors at the EMU Periphery.

The newly-elected Hellenic Socialists (PASOK) of George Papandreou confess that the budget deficit will be more than 12pc of GDP this year, four times the original claim of the last lot. After campaigning on extra spending, it will have to do the exact opposite. "We need to save the country from bankruptcy," he said.

Good luck. Communist-led shipyard workers have already clashed violently with police. Some 200 anarchists were arrested in Athens last week after they torched streets of cars in a tear gas battle.

Mr Papandreou has mooted a pay freeze for state workers earning more than €2,000 a month. This has already set off an internal party revolt. "There is enormous denial," said Lars Christensen, emerging markets chief at Danske Bank. "They don't seem to understand that very serious austerity measures are needed. It is a striking contrast with Ireland," he said.

Brussels says Greece's public debt will rise from 99pc of GDP in 2008 to 135pc by 2011, without drastic cuts. Athens has been shortening debt maturities to trim costs, storing up a roll-over crisis next year. Some €18bn comes due in the second quarter of 2010 (IMF).

Modern economies have reached such debt levels before, and survived, but never in the circumstances facing Greece. "They can't devalue: they can't print money," said Mr Christensen.

The tourist trade is withering, down 20pc last season by revenue. Turkey was up. It is hard to pin down how much is a currency effect, but clearly Greece has priced itself out of the Club Med market. Wages rose a staggering 12pc in the 2008-2009 pay-round alone (IMF data), suicidal in a Teutonic currency union. Greece has slipped to 71st in the competitiveness index of the World Economic Forum, behind Egypt and Botswana.

Greece has long been skating on thin ice. The current account deficit hit 14.5pc of GDP in 2008. External debt has reached 144p (IMF). Eurozone creditors – German banks? – hold €200bn of Greek debt.

A warning from Bank of Greece that lenders must wean themselves off the ECB's emergency funding has brought matters to a head. Default insurance on Greek debt jumped 40 basis points last week.

Greek banks have borrowed €40bn from the ECB at 1pc, playing the "yield curve" by purchasing state bonds. This EU subsidy has made up for losses on property, shipping, and Balkan woes.

The banks insist that they are in rude good health. EFG Eurobank has halved reliance on ECB funding. "Greek banks are very liquid: we maintain billions in extra liquidity," it said. Yet markets are wary. Recession has come late to Greece, but will bite deep in 2010. It takes three years for defaults to peak once the cycle turns.

David Marsh, author of The Euro: The Politics of The New Global Currency, said the danger for EMU laggards is that the ECB will begin to tighten before they are out of trouble. It is German recovery that threatens to stretch the North-South divide towards breaking point.

Athens squandered its euro windfall. For a decade, EMU let Greece borrow at almost the same cost as Germany. It was a heaven-sent chance to whittle down debt. Instead, the country dug itself deeper into a hole by running budget deficits near 5pc of GDP at the top of the boom.

Like Labour under Brown, idiot leaders mistook a bubble for their own skill. But the consequences in EMU are more dreadful. Austerity may prove self-defeating, without the cure of devaluation. Greece risks grinding deeper into slump.

The EU can paper over this by transfering large sums of money to Greece. But will Berlin, Paris – and London, also on the hook – feel obliged to bail out a country that has so flagrantly violated the rules of the club, not least by holding Eastern Europe's EU entry to ransom over Cyprus? That is neither forgotten, nor forgiven.

During the panic last February, German finance minister Peer Steinbruck promised to rescue any eurozone state in dire trouble. He is no longer in office. The pledge was, in any case, a bounced political cheque even when he wrote it. Greece can assume nothing.

http://www.telegraph.co.uk/finance/comme....

Originally Posted by Milkman

Iceland's three McDonald's restaurants — all in the capital Reykjavik — will close next weekend

Every cloud has a silver lining.

Greece has been in the news for some time b/c of this issue.

I've also read about the USA and the UK Aaa bond ratings today....

Greece (FT) -- Greece saw its credit ratings downgraded to the lowest level in the eurozone on Tuesday as fears mounted over its deteriorating public finances.

Heavy selling of Greek stocks and bonds came amid fears that the country was heading for financial disaster unless politicians tackled dangerously high debt levels. Shares on the Athens stock exchange fell more than 6 per cent.
Fitch cut ratings on Greek debt to BBB plus with a negative outlook. It is the first time in 10 years a leading ratings agency has given Greece a rating of below A grade.


George Papaconstantinou, Greek finance minister, said the country would do "whatever is required" to reduce a record budget deficit and achieve its medium-term fiscal targets.


He said the downgrade reflected Greece's "mounting credibility gap in recent years and an exceptionally difficult fiscal situation" faced by the new Socialist government, which took over in October.


Fitch said the downgrade "reflects concerns over the medium-term outlook for public finances, given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery".

Link & Entire: Greece downgraded over high debt - CNN.com

Not looking too rosy in Greece is it?

Did anybody catch the latest term for grouping together the names of the Euro countries that are most in the shit?

Portugal, Ireland, Greece and Spain....

PIGS

UK should be in that group by rights though :-(

Did Hedge funds conspire to devalue the Euro?

Jim Rogers on Greece and the EU.

Good clip.

hum, quite an interesting take

so we should let Greece fail and default ? I have to admit, I wouldn't mind that

What is the point of trying to keep Greece from defaulting?

It would be more waste of taxpyer EU money.

A minute and a half update on Greece.

Painful measure to be taken in Greece. I expect more protests.

Any new insights from your board members in Europe?

On the recent ECB decision to launch this QE.

2015: The global economy's 'sink or swim' moment
By Alanna Petroff @AlannaPetroff January 24, 2015

2015: The global economy's 'sink or swim' moment - Jan. 24, 2015

Both Carney and Coeure recognized that central bank stimulus measures tend to benefit people who already have investments and assets, while hurting everyday savers.

The Old Boys Club looking after themselves.

Guys like him abound..... follow the populist vote and just like a dog chasing a car, when the car stops , realises he cannot drive. Let’s see how he learns fast !

So, the Greece that cooked up a set of bullshit books to get into the Euro have now thrown the books out of the window and said bollocks.

Only a country could get away with that.

Nobody seems to be complaining about Iceland these days, although they reneged on debts and threw some of the bankers in jail. Could it be because they're doing ok?

Originally Posted by Begbie

Nobody seems to be complaining about Iceland these days, although they reneged on debts and threw some of the bankers in jail. Could it be because they're doing ok?

It's probably because they're too small to matter.

What global crisis?

Europe and the people without a history.