Monday, December 10, 2012

Perma-slump Eurozone


 Ambrose Evans-Pritchard does it again, signing a most remarkable article in the Telegraph. “Europe clings to scorched-earth ideology as depression deepens” explains how, “like the generals of the First World War, Europe’s leaders seem determined to send wave after wave of their youth into the barbed wire of tight money, bank deleveraging, and fiscal austerity à l’outrance”.

Excerpts:

“The Eurozone has crashed into double-dip recessions.  …

The North has been engulfed at last in the contractionary holocaust it imposed on the South. …

The labour share of total income has fallen to a 60-year low, eating away at demand. This is a formula for perma-slump. …

Debt dynamics are deteriorating at a frightening pace across half Europe. …

Europe’s curse is that Germany has a massively undervalued exchange rate within EMU, and therefore has different needs, and yet controls the policy levers for everybody. …

A wiser Germany would see that it cannot force the brunt of adjustment on the South without causing a contractionary bias to everybody.  …

The Latin alliance could force an end to German-imposed contraction policies at any time …  but that would require an entirely new leadership in France, willing to sacrifice the illusion of Franco-German condominium and the foreign policy catechism of the last half century.  …

Italy faces a slow lingering death. Citigroup says the economy will contract by 1.2 pc in 2013, and again by 1.5 pc in 2014, with near zero growth thereafter, endin in debt restructuring anyway. France will stagnate until 2016.
If this is what lies in store, there is no further reason to hold EMU together. It should be dismantled in an orderly way after Christmas before it does any more damage.”

There is much more to read and ponder in the article. Evans-Pritchard provides examples and data that illustrate his main points.

The whole article is a must read here.

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