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Euro area is back on the brink of recession (economist.com)
74 points by theBashShell 24 days ago | hide | past | web | favorite | 88 comments

Given China has seen lowest growth in almost 30 years and the US where some positive numbers are hiding some negative stories, it would seem that there is a wider context to take into consideration. The article seems loaded with the premise of the Euro is bad but taking the wider global context, this premise seems flimsy. Dont get me wrong, the Euro has proven to be a great way of legally devaluing german currency and the opposite to southern med countries but my issue is the finger being pointed at something when there is almost certainly a bigger picture to be considered.

> US where some positive numbers are hiding some negative stories

This is such a strange thing to say. Do you think China and the Euro Area don't have 'negative stories'. Have you heard about Greece for example? Either compare numbers or stories.

You're right, bonds are globally extremely inflated. It's predictable that people are losing confidence in fiat currencies with such an asset bubble and without a country to escape to anymore. I was proud owner of CHF as an exception from other fiat currencies until it got pegged to EUR.

The CHF is not pegged to the EUR, what are you talking about? The had a expensive monetary policy by using a floor against the EUR for a while that however was not a peg.

Furthermore there is no evidence at all that people are losing confidence in fiat currencies.

And I'm not sure why you trusted CHF more before, its just another fiat currency. You could by Australian, New Zealand currency, they are well managed fiat as well.

Well, the peg only lasted for three years.

Only? I lost enough money in 1 day that I lost my trust in the Swiss National Bank. I'm not complaining though, I started diversifying to other asset classes and easyly made it back, so I view it as a lesson learned.

Guess what, monetary policy about managing your personal check book. The SNB acted pretty well, one of the best in the world and the Swiss economy was much better of then most comparable countries because we could devalue when people like drove up the demand for CHF and almost pushed Switzerland in a deflation. That might be good for your check book but it would be a disaster for the economy.

It's bad for exporters, great for everybody else in Switzerland. Anyways I didn't own any fiat since then, but of course living with the volatility of other assets have their downsides. I'll move back partly to fiat, as it still has its advantages.

Its not bad for exporter, the opposite actually. Exporters were the people wanting expansionary monetary policy because high CHF made their products more expensive.

In fact this was great for the majority of people as nobody profits in the long run from a deflationary spiral.

A headline in search of an article.

Very little context provided, would have probably been served even better with just a graph of the euro zone growth from 1999 quarter by quarter versus other economies like Japan, US, China for context.

Journalism feels lazier and lazier as it constantly searches for more clicks and ad impressions.

For reference here's the 1999 through the end of 2017 GDP per capita figures and relevant chart, with the US (and $USD) as a baseline, and I've included some other side countries below.

The biggest gains: China, Russia, Romania, the Baltics, Czech, Slovakia, Poland

The worst: Japan, Greece, Italy, France


Lithuania $3,113 -> $16,680 (436%) | Latvia $3,151 -> $15,594 (395%) | Estonia $4,119 -> $19,704 (378%) | Slovakia $5,636 -> $17,604 (212%) | Ireland $26,284 -> $69,330 (164%) | Slovenia $11,442 -> $23,597 (106%) | Spain $15,678 -> $28,156 (80%) | Finland $26,178 -> $45,703 (75%) | Austria $27,174 -> $47,290 (74%) | Netherlands $27,951 -> $48,223 (73%) | United States $34,620 -> $59,531 (72%) | Belgium $25,444 -> $43,323 (70%) | Portugal $12,474 -> $21,136 (69%) | Germany $26,795 -> $44,469 (66%) | France $24,673 -> $38,476 (56%) | Italy $21,936 -> $31,952 (46%) | Greece $13,245 -> $18,613 (41%)

China $873 -> $8,826 (911%) | Russia $1,330 -> $10,743 (708%) | Romania $1,610 -> $10,813 (572%) | Czech $6,307 -> $20,368 (223%) | Poland $4,389 -> $13,811 (215%) | South Korea $10,409 -> $29,742 (186%) | New Zealand $15,322 -> $42,940 (180%) | Australia $20,521 -> $53,799 (162%) | Canada $22,167 -> $45,032 (103%) | Switzerland $40,581 -> $80,189 (98%) | Sweden $30,577 -> $53,442 (75%) | Denmark $33,440 -> $56,307 (68%) | Japan $36,026 -> $38,428 (6.6%)

I think there is no chart because, if you go find one, it shows EU growth in the last ten years has been going up and down in a pretty similar fashion to Switzerland, Japan, South Korea, and other non-EU advanced economies. This would indicate that being in the EU hasn't really helped them all that much, but it also hasn't hurt that much (in aggregate). So, not much of a story, which feeds right back to your point.

It's gonna be pretty hard to disentangle Switzerland, given how many treaties they have are part of with the EU. Though, the EU isn't primarily about econonomics IMHO; I'd predict that EFTA would have come to pass without the EU as well.

Well, the EU was not made to improve the economies of its members. Its main goal is to intertwine them enough to make another big war way too painful.

And to make Europeans strong enough to be peers to US and then-USSR, rather than being their battlefield. This has become even more urgent now that China and India have accelerated their inevitable rise to superpower status.

No surprise there. "When goods don't cross borders, armies will."

I've heard that, but there are a lot of counter-examples. The colonial wars in China and elsewhere happened in order to force China to participate in trade. Plenty of cases of the U.S.A. invading either to make sure their banks got reimbursed, or to prevent Europe from doing the same.

Plenty of other examples one could give, but the chart on this article (https://www.weforum.org/agenda/2017/01/why-the-world-looks-a...) may do. Free trade hit a peak in 1913, the highest it had perhaps ever been. The period that followed was not exactly peaceful.

Funny that mostly not how they sold it to the poor countries, or even the rich countries.

That might have been what the elites believed, more political ingratiation. That of course is good for them as well.

In reality when they 'sold' this is was all about economics. And the routes of the whole thing are economic as well.

You have aims, and you have ways. The signatories on the Treaty of Rome all had very explicit political aims - it was 1957, the Cold War was in full swing, something had to be done. They simply had the intuition that the only way to reach these aims was through economic integration first, because the continent was still too raw from two centuries of total war. With the years, the model was so successful that others joined because of the economic benefits alone. But it was never just about business, not even Thatcher seriously believed that; it was about the realities of a world where European countries, kings of the planet for half a millennia, were going to become fundamentally irrelevant in a few generations, and risked being again the battlefield between global superpowers.

The Economist has historically been a big supporter of the EU and globalization. Something has shifted in their perspective. They were also pretty downbeat about the EU's prospects while discussing the Aachen Treaty between France and Germany that was signed yesterday. https://www.economist.com/leaders/2019/01/17/france-and-germ...

The Economist may seem like an unusually monolithic publication because they don’t give bylines to individual story authors, but there’s actually quite a bit of variance in opinions in their reporting. They’re certainly not the EU commission’s press office.

Yeah, I had to double check to make sure I was actually reading the Economist. Felt weird to be getting a perspective like that from them. Why the shift?

They don't seem to make the link that maybe Brexit is not such a bad idea after all, which seems a logical conclusion to me.

You think a recession in Europe will impact Britain less after Brexit? It’s not as if Britain will have more trading options.

The EU is actually pretty protectionist, to the point where Turkey got into some trouble with the WTO for implementing their trade policies as part of the customs union with the EU.

being able to make trade deals outside the EU doesn't count then?

I suspect that is the signal from the Rothchild empire - someone will have to pick up the Italian debt and the EU is arguably obsolete in its present form and wouldn't reform when it could prior to the UK referendum. (Rothchild own half the economist and it is largely their mouthpiece). Going forward and post UK exit from the EU (and probably other nation states too) there will be a reformation around some new organization...

"Aside from the Agnelli family, smaller shareholders in the company include Cadbury, Rothschild (21%), Schroder, Layton and other family interests as well as a number of staff and former staff shareholders." - from wikipedia

Exor and Rothchild are very tight indeed https://www.reuters.com/article/idUSL6E8FHATY20120417

Exor hold 43% of the Economist the next biggest shareholder is the Rothschild family with 26% https://www.theguardian.com/media/2015/aug/15/economist-beco...

The link between brexit and what?

Also, why do you think brexit is not a bad idea?

Kind of for the same reason the American Colonies split from England.

Kind of, except in reverse. UK had a lot of power in internal-EU politics. Now it won't. ¯\_(ツ)_/¯

It had the right and power to implement its own immigration policy. But it turns out the UK is so racist it doesn't even want to grant citizen status to those it had already granted to in law but then failed to process them.

For one thing it means that one person (e.g. Angela Merkel) doesn't get to unilaterally determine UKs immigration levels any longer.

Uk was one of the most powerful members of the EU before brexit and saying "one person (e.g. Angela Merkel) determine UKs immigration levels" is not correct.

UK is not part of the Schengen Agreement, like, Ireland they can decide if a particularity nationality need a visa, I have dual nationality and I can enter Ireland or Uk without a visa using one passport and need a visa using another.

Once the millions of migrants in Germany have the requisite EU papers they would be able to flood into the UK. Shengen is a complete red herring.

Asylum papers aren't citizenship, and do not give the rights a EU citizen has (I believe typically they don't allow to leave the country), so the UK can freely choose if it wants to let them in or not.

> I believe typically they don't allow to leave the country

They do:

> You can travel to the so-called Schengen states (Belgium, Germany, Denmark, Estonia, Finland, France, Greece, Ireland, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Austria, Poland, Portugal, Romania , Sweden, Switzerland, Slovakia, Slovenia, Spain, Czech Republic, Hungary) without a visa, if you do not stay longer than three months and you do not work there. [0]

In the EU that's a moot point anyway as I haven't seen any border control in years. So at least travel-wise they're quite free to move.

[0] https://handbookgermany.de/en/rights-laws/asylum/blue-passpo...

"To travel to many of these countries, however, you must apply for a visa in advance."

you need a visa, is not free to move.

UK and other Member States always had the right to decide for themselves with regards to immigration (movement between Member States was the only thing the EU influenced, and that was not up to Merkel or any head of state)

Other countries found a way to oppose her without leaving the EU. There was a lot of bad press and name-calling back then, but they made their point.

Someone must have sold you a bridge then.


I still cant believe the Aachen Treaty is going forward.

You mean this one [1]? What specifically is the argument against? It seems reasonable...

[1] https://www.bundesregierung.de/breg-en/chancellor/germany-an...

A huge issue is the stagnating population growth in European countries. Over the last 10 years Germany, Italy, Spain have only barely risen in population. Of course that means lots more retirees and fewer workers. Maybe flat economy is actually a good outcome as can be expected.

One of my favorite stats is that 100 years ago the population of Europe was nearly 30% of the world's total. Now its <10% and falling quickly.

Finally Yes I dont think its necessarily a bad thing, but you can't expect strong economic growth will falling working age population.

Most of this has to do with massive growth elsewhere, not so much failing growth in W. Europe, which is more of a new trend.

I don't think the 'warm bodies arms race' is going to end well for anyone, another perspective might be more apt.

I don't think the 'warm bodies arms race' will end well either. What perspective are you considering?

Current growth strategies are all fundamentally 'warm body growth' i.e. the economy is grown mostly through babies or immigration, not any kind of real industrial growth or innovation.

If you look at USA growth vs. Western Europe, the USA does better, but not so much if you account for headcount.

As Western nations have fewer babies, there's a push for more migration, which in some places can work, not so much in others.

Europe has quite a lot of people and there are real physical limits to that growth - surely, it could all be as dense as Hong Kong but at some point, there needs be some consideration.

The West should not be trying to compete with Asia by having as many babies as them, surely.

If anything, we should maybe be trying to help tackle population explosion in some places, which can be done even with fairly non controversial methods like basic economic prosperity.

> which can be done even with fairly non controversial methods like basic economic prosperity.

Where's the money going to come from in a non-controversial way?

Well it may not come from anywhere.

But we still have a long way to go in applying technology and processes to make our lives better.

Also, as 5B poor people in the world come online and become consumers, they're going to need a lot of iPhones and eat a lot of KFC etc.

Its a bad thing when the population of countries at the top of this list are decreasing, and those at the bottom increasing:


The taxes in Europe are too high and Government and Welfare programs need to be scaled way back. The fact that you have for example millions of young foreign men walking on foot all the way through the continent to access welfare-rich States indicates that something is amiss.

Since 2007 - broadly the great recession time frame forward - Lithuania has had by far the best GDP per capita growth among Euro members at nearly 40% (nominal, USD terms). Estonia is second, at around 19-20%. Latvia is third at about 11%. Slovakia is up 10%.

A distant fifth is Germany at around 7%. Ireland is up a couple percent.

Everyone else in the Eurozone is either near flat or negative on growth over the last ~11-12 years.

Greece is down 35%, Italy is down 15%, Spain is down 14%, Portugal is down 7%, France is down 7%, Finland and the Netherlands are down about 5%.

While the article is criticizing the Euro, Denmark and Sweden have also seen essentially zero per capita growth since 2007. The UK is down 20% over that time.

Outside that group and the Euro, you've got Romania up 30%, Poland up around 23%, Czech up 11% and Russia up 18%. I've excluded Norway, just because their figures swing wildly with oil.

There's definitely a sustained, serious growth problem in most of the Eurozone, however the baltics are doing quite well. The Netherlands, Belgium, Ireland, Finland, Germany and Austria are starting from quite high per capita figures, it's not a trivial task to keep pushing those higher.

The real issue isn't growth generally, it's that the next slide backwards in terms of recession, is going to badly damage the bunch that hasn't held their ground or seen enough recovery yet: France, Italy, Spain, Portugal, Greece. I'm not sure how the Euro survives if those sink lower in a recession and see another lost decade. Which would then actually be a lost two decades - a 1/3 to 1/2 real contraction for all of them, inflation adjusted over time. Losing that much of your purchasing power over 20 years is brutal, people won't sit idly by and absorb that forever, they'll rebel against the institutions.

France has pretty considerable exports, equivalent to nearly 20% of their GDP (the US is closer to 11% by comparison). If I'm them, I'd be seriously contemplating that I'd be better off controlling my own currency, so as to undercut the Germany export juggernaut rather than suffer from a currency that is too expensive (while simultaneously being artificially cheap for the German economy, spurring their exports and trade imbalance). Spain, Italy, Portual and Greece are all similarly suffering from a Euro that is too expensive for their situations (to varying degrees) and is harming their export potential.

Well, looking at https://en.wikipedia.org/wiki/Economy_of_the_Netherlands, it shows Dutch GDP per capita (in EUR, nominal) up by >14% since 2007. You used GDP in USD, but to me that seems somewhat misleading: just because the EUR dropped relative to USD, doesn't mean that the economy suddenly shrank.

> I'm not sure how the Euro survives if those sink lower in a recession and see another lost decade.

This seems like a non sequitur to me. Why wouldn't the Euro survive? If Japan had a lost decade, would you speculate about the survival of the yen?

Maybe Japan has more obeying population than the more enterprising population in Europe.

Because an obvious alternative to the Euro exists and was used in the past.

You are just seeing a reversion to mean for those poorer ex-communist states getting richer. The growth is driven by cheap labour, energy and land.

You cannot imagine that once free of the shackles of Communism, a high-IQ country like Poland will stay forever poor, instead they will eventually equalise with neighbours like Germany:


Somebody should ask Germany to exit the euro

Things are not looking promising and 2019 is European elections year. Greece has financial and many other issues, Italy has also many financial and internal issues, Germany is not holding the same powerful position as it had with Merkel, UK is uncertain with one foot in the EU, France has already a lot of problems and many more coming up and the same goes for other countries (immigration, politics, economy...). Let’s see how things play out.

Meanwhile, every other country in the World is smooth sailing.

Certainly not, lots of issues in many other countries. It’s just that the density/concentration of problems is higher in EU (IMHO).

The EU doesn't have a looming student loan crisis, or a health crisis due to opioid epidemics. In terms of human suffering caused by these two issues alone I have a hard time believing the EU is worse off.

I fail to see the looming student loan crisis given that they can't be discharged in bankruptcy.

It's a problem if students can't pay for their student loans. If nearly '40%' of borrowers are expected to default on their student loans, then there will be alot of universities shutting down in the near future and there will be ripple effects in the economy[0].


I don't think so. When people think about the USA they only think about the 1 or 2 most significant problems overall. With Europe you think about the 1 or 2 for each of the constituent countries and so it seems more problematic. To be comparable you would need to think about the 1 or 2 most significant problems for each state in the USA. Once you do that the number of issues is not that different.

I recommend the documentary Where to Invade Next, from Michael Moore.

I think EU have actually little problems compare with others.

This article seems to ignore Northern and Eastern Europe which are booming. Italy is not the whole Europe. Compare it to US where different states have different performance at different times.

That I think is the saving grace of Brexit. Investor confidence in Italian public debt will evaporate sooner or later, and I don’t see Germany allowing and paying for a bailout of Italy, given how they reacted to the bailout of Greece. The UK will likely look like a safe heaven for capitals when that happens.

How does Brexit make the UK attractive in the event of a near-term Eurozone crisis? The grim economic outlook if the UK's major trade partners are all in deep recession isn't improved by it having lost a lot of that trade earlier in the year for other reasons, and its economy isn't going to reinvent itself overnight.

Because if (or when) Italy is about to introduce capital controls to prevent its banking system from collapsing, investors will not make a decision based on the industrial outlook of the UK, but based on the stability of its legal and banking system, and its independance from Italy's financial woes.

But the stability of the UK's legal and banking system receives precisely zero benefit from Brexit (quite the opposite) and the UK gains further "independence from Italy's financial woes" from Brexit only inasmuch as it would lose some of the trade it might be expected to lose in the event of a Eurozone recession a little earlier. (I could just about see how the UK would benefit from being less exposed to Italian financial woes if you anticipated an EU policy response of requiring Member States to contribute to bailouts and/or buy up Italian debt, but that's the bit you ruled out, and I'd see as being unlikely to be applied to non-Eurozone states)

No, they were trying to rope in even non eurozone member states.

Not to mention the UK won't be in the hook for part of the bailout. Sounds good to me.

Investors already voted against pound (look at the exchange rate). Brexit shown them that U.K. is no longer predictable and stable. And since after Brexit it will be equally expensive to move funds from Eurozone to U.K. or to any other country - there are likely to choose somewhere else.

The city of London has been going for hundreds of years. It thrived before the EU, it will thrive after.

You forget that we don't have a colonial empire anymore.

It existed long before empire.

Italy has had the same debt levels for almost 30 years now. Who could lose faith, has already lost it a long time ago. And a lot of that debt is internally held anyway.

If necessary, Italy will again be put under special measures as it was at the end of Berlusconi’s run; but it will never, ever default. Italians will self-tax to death before they default on their public debt, because too much of that debt is with themselves.

I didn't know Theresa May wrote for The Economist. /s

And to think the comission was making speeches just a few months ago touting a faster than US growth rate.

Common currency without a common monetary policy, who would have thunk that this was a bad idea?

uh, the ECB sets the eurozone monetary policy[1]

1 - https://en.wikipedia.org/wiki/European_Central_Bank

There's a lot of FUD about the EU, especially in America

Don't get me started about the American companies that rate other countries.

I'm guessing parent meant fiscal policy.

i did sorry.

I think you mean 'Common currency without a common fiscal policy, who would have thunk that this was a bad idea?'.

If there is one money then by definition there can only be one monetary policy.

The issue is precisely that under different fiscal rules monetary policy effects different places in different ways.

We can always just keep siphoning cash from US multinationals thru bogus antitrust claims. That's one way to stay afloat in the face of demographic crisis, stagnant productivity, and Chinese takeover of key sectors.

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