Wednesday, October 31, 2012

Divergence Continues in Euro-Zone

From today's Spiegel,
"According to a report released on Wednesday by Eurostat, the European Union's statistical office, unemployment in the 17-nation common-currency area stood at 11.6 percent in September, the highest it has ever been.The numbers represent an up-tick against the 11.5 percent rate reported for August. In total, Eurostat estimates that 18.49 million people were out of work in the euro zone, up 146,000 over August. The rate indicates a significant rise against the euro-zone unemployment rate in September 2011, which was 10.3 percent.
The trend toward spiking unemployment rates was particularly strong in those countries suffering the most under the ongoing euro-zone debt crisis. Between September 2011 and the same month a year later, the unemployment rate in Spain rose from 22.4 percent to 25.8 percent and in Portugal from 13.1 to 15.7 percent. In Greece, unemployment rose from 17.8 to 25.1 percent from July 2011 to July 2012, the last figures available for the country.
With the euro-zone economy likely headed for a year of negative growth this year -- the ECB is forecasting a 0.4 percent contraction -- it seems unlikely that employment in the 17-country currency zone will improve any time soon"
Despite decades of a reasonably successful customs union and a less than stellar currency union, the perpetual struggle for EU hegemony between France and Europe continues to this day.   Italy's international leadership credentials have never kept pace with the nominal size of its economy.  The structure of the EU and the euro have created a further divide, called the "core" and the "periphery."

The whole notion of an EU consensus is a fantasy for academics and bureaucrats in Brussels.  Britain's electing not to be part of the common currency was, frankly, supposed to backfire on them as they stayed out of an economic powerhouse, a United States of Europe.  In a sense, Britain's assessment of the future was correct. However, it really detracts from the potential of an efficient EU to have Britain on the sidelines.

For the elected governments of the periphery nations, especially Spain, Portugal, Greece and Ireland, the only real attraction of the EU at this point is ready credit on subsidized terms with no budget control from Brussels.  That program isn't available.  Their view of a European consensus will have nothing to do with those of France and Germany.  They can't take much more pain without tearing their social compacts.

It seems, superficially, that Schäuble and Merkel are suddenly on the same page, nominally ruling out a "Grexit" and granting powers over national budgeting to Brussels. This is cynical posturing for the press and markets.  The closer such a system came to being implemented, with the specific rules for elections and voting visible, the more viscerally unacceptable this system would be to politicians and voters.  

Where will the funding for a Keynesian stimulus come from in the wake of a zero growth 2012, and prospects for a similar path in 2013?  Multilateral EU facilities are tapped out, or soon will be as they get overtaken by events. 

A German sovereign investment fund, which we've written about before, could only be an improvement over the current impasse.  It would be within national control and directed towards investments that created efficiency and return, hopefully with the cooperation of EU partners.  It isn't a solution to the EU malaise by itself, but it could be a step forward. 

No comments: