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A Graphical Walk-Through Of An 'Un-Fixed' Europe

Tyler Durden's picture




 

Why has the Euro-zone fallen back into recession, and why can't it shake of its seemingly never-ending crisis? Is there light at the end of the tunnel - or is that an approaching train? A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration - facts as opposed to the hope and anecdote that we are bombarded with on a daily basis. While perusing these charts, consider EU President Barroso's comments just today that, "the worst of the crisis is over." You decide.

Full chart pack below...

While retail sales are stagnating in Germany, they are shrinking dramatically in countries that had to be bailed out.The Netherlands are again a surprise, with similar development as in Hungary. In Germany and France, industrial production peaked in early 2011. Other countries (Greece, Spain, Portugal) never really recovered.

Finally, a look at the banking sector. Deposits in Spain and Portugal are bleeding with annual rates of 10%. This, together with rising non-performing loans and increased capital requirements will make banks reduce their lending, choking small and medium-sized companies.This is reflected in declining loans by financial institutions in the PIIGS (with the exception of Italy - for now).

 

Via Alex Gloy of Lighthouse Investment Management

Summary

1. GDP is pretty useless as indicator of economic strength, as it ignores debt accumulated by the largest contributor to GDP (governments).

 

2. If one thing can be gained from looking at real GDP it is the fact that, over the past 12 years, Italy's growth has been inferior to that of Japan. Without any grow, even otherwise (borderline) sustainable debt levels become too much of a burden on the economy.

 

3. Even in times of rapidly declining revenue, governments are unwilling or unable to cut spending unless forced to do so by EU/ECB/IMF. This is the reason why most countries try to resist any bailouts until it is too late (usually when the capital market refuses to further finance its debt).

 

4. Governments do not have any cash reserves; insolvency is only a failed debt auction away and can happen at any time.

 

5. Trade imbalances of the PIIGS are on the mend (but without the major beneficiaries, Germany and Netherlands, giving up any of their surpluses).

 

6. The average interest paid on government debt is surprisingly uniform (3-4%); the subsidy of being member in the Euro zone does not enforce fiscal discipline.

 

7. Unemployment, and especially youth unemployment provides for potentially explosive social tensions and/or radical political movements, making governing more difficult.

 

8. Debt-to-GDP ratios continue to rise as required fiscal adjustments are too large and recessionary trends take their toll on government finances.

 

9. Despite recent improvements, Germany has still a large advantage in unit labor costs.

 

10. Declining house prices in Spain and Portugal will continue to weigh on banks.

 

11. Collapsing retail sales and industrial production in the PIIGS continue to erode the tax base.

 

12. In Spain and Portugal, trends in deposits look to undermine the banking system and choking small and medium-sized companies.

Conclusions

  • Developments in Spain and Italy will lead to further deficits and increase in debt levels.
  • At some point, capital markets will refuse to absorb new debt.
  • ECB/EU/IMF will be forced to step in, as local banking systems are loaded with government bonds.
  • Any government bond restructuring would also impair the banking system.
  • Rumors regarding the solvency of banking systems could trigger bank runs, as depositors are warned by the Cypriot example.
  • Many years of further austerity seem to be the inevitable result, with potential political and social instability sprinkled in.
  • Central banks might be able to paper over (literally) a collapse of the Euro-zone, but still won't be able to prevent stock markets from reacting negatively to recurring crises

 

Full Presentation below:

Lighthouse - Euro-Zone Monitor - 2013-04 by gloeschi

 

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Wed, 04/03/2013 - 21:41 | 3406473 morning
morning's picture

Don't forget that the portuguese constitutional court is set to announce its ruling on the budget cuts (likely against half or more of it) in the next 48h.

Wed, 04/03/2013 - 22:00 | 3406529 Buck Johnson
Buck Johnson's picture

The Western world needs a nasty big war to cover for their inept handling of the economy.

Wed, 04/03/2013 - 22:18 | 3406583 Croesus
Croesus's picture

The Crash is coming soon......very soon.

 

 

Wed, 04/03/2013 - 22:41 | 3406655 Pseudo Anonym
Pseudo Anonym's picture

promise?

Wed, 04/03/2013 - 21:43 | 3406476 LetThemEatRand
LetThemEatRand's picture

If things get bad enough, they'll dream up some pretend nuclear war threat from a country that thinks an F-18 is part of the menu.  

Wed, 04/03/2013 - 21:44 | 3406482 thisandthat
thisandthat's picture

Europe needs to teach those Poles a lesson - maybe Germany should remind them of the consequences of thriving outside the Euro...

Thu, 04/04/2013 - 06:50 | 3407203 PolishErick
PolishErick's picture

Thriving? As in 'Mexico of EU'/'sweatshop'/'dump market' thriving? Like 15 to 17% unemployment thriving? With those traitors Tusk and Sikorsky kissing Frau Mutti's ass every chance they get? Jumping to the tune of every EU bureaucrat- promising we will join the Eurozone no matter what?? Great...

 

Know who will be in the next government (who already gets the positive coverage from the MSM)? Kwasniewski- the communist who got stumbling drunk over the graves of murdered Polish soldiers in Kharkiv on TV (and never apologised) and Palikot- an idiot openly saying we need an EU superstate with one president, one army, one central bank... 

 

Thriving with a bankrupt state pension system and a finance minister openly saying we should put radar cameras on every road to get more money into the budget...

 

Oh and guess what the polish are doing about it? Theyre taking it on the face like a 10 dollar crack whore. 

 

Its not a matter of time its already a failed state, with the dumbest nation living in it- I know it- Im one of them.

Thu, 04/04/2013 - 07:12 | 3407244 Sandmann
Sandmann's picture

What is the Bank Rate in Poland ? I thought it was c. 5% as against 0.5% in London. With 4% Poland's population in the UK how big are the remittances to Poland from the UK ?

I think it is typical of the grandiosity of politicians, especially in Poland, to imagine they are at the top table - these idiots think they will replace the UK in the affections of France and Germany forgetting that France under Chirac told them to butt out and keep quiet, and that Germany really views Poland more like Italy than the UK.

Poland has great potential but the political class is once again going to screw it up with its narcotic dreams of "la gloire" and being some kind of reincarnated Polish-Lithuanian empire. Poland is simply what the Germans call a Verlaengerte Werkbank at present with foreign-owned plants and a dependence on Regional Aid and Structural Funds from the EU funded by places such as the UK.

The Euro will destroy Poland

Thu, 04/04/2013 - 07:18 | 3407254 Ghordius
Ghordius's picture

"The Euro will destroy Poland" - according to your logic a simple peg to the EUR could destroy Poland, correct? or, to say it differently I don't understand anything about your point - might be my fault

Thu, 04/04/2013 - 08:21 | 3407365 Sandmann
Sandmann's picture

There can not be a peg to the Euro with 4.75% Lombard rate in Warsaw. The currency is simply overvalued vis-a-vis Sterling and Euro and would lose any competitive advantage in a world of flat Central Bank rates approaching zero. It would soon need ECB support for its Bonds.

 

Thu, 04/04/2013 - 17:28 | 3409918 thisandthat
thisandthat's picture

You just pretty much described EU on the whole... and which country is actually thriving? From the graph, polish industrial production is up 10% from 2008 - even Germany hasn't recovered since. Relatively speaking, that's as close to thriving as we get, I guess.

Thu, 04/04/2013 - 07:10 | 3407240 Ghordius
Ghordius's picture

Poland? It's still queing on entering the eurozone, according to it's government and parliament. Poles seems to like the EUR

Thu, 04/04/2013 - 07:13 | 3407245 Sandmann
Sandmann's picture

Yes Ghordius, they have a history of making bad choices

Thu, 04/04/2013 - 07:14 | 3407247 Ghordius
Ghordius's picture

you mean like being repeatedly partitioned between Austria, Germany and Russia? imho they want to keep their options open and see on which side the coin drops

Thu, 04/04/2013 - 08:14 | 3407351 Sandmann
Sandmann's picture

No I meant like electing a King and letting Catherine the Great fix it for Poniatowski because the aristocracy was too weak to lead. I mean like having a Foreign Minister like Colonel Beck. I mean the OZON movement. I mean refusing to negotiate over Danzig and the autobahn and deceiving Chamberlain in March 1939. All disastrous

Thu, 04/04/2013 - 16:43 | 3409701 thisandthat
thisandthat's picture

Frankly, about WW2, I doubt Poland ever had a chance: Hitler was hell bent on getting the old empire back (and invading the Soviet Union), and only did a favor to Stalin in parting Poland (or so he thought... more like vice-versa, actually).

Fri, 04/05/2013 - 04:26 | 3411454 PolishErick
PolishErick's picture

Ill agree with everything eccept that autobahn bullshit. Hitler wanted a war and he was gonna get it anyways... the REALLY bad choice back then was not forming local aliences on rushing for arms befor the shitstorm started.

Thu, 04/04/2013 - 09:42 | 3407633 Sandmann
Sandmann's picture

You really will need to explain that one.......and very carefully

Thu, 04/04/2013 - 16:29 | 3409654 thisandthat
thisandthat's picture

Or else...? Ok, I'll admit I don't really follow Polish politics closely, but that I remember, the late prime-minister and his party, at least, were against joining the euro - and we all know how Europe wants every fool erm... country to join in (the more the merrier, I guess).

Wed, 04/03/2013 - 21:45 | 3406492 stinkhammer
stinkhammer's picture

damn pikeys

Wed, 04/03/2013 - 21:47 | 3406499 AlphaHunter001
AlphaHunter001's picture

 

"Any government bond restructuring would also impair the banking system."

 

This is the problem, they are far too intertwined.

 

Eventually we'll see some of the weaker nations leave, which will cause massive pain for those residents as costs skyrocket once their new currency is valued at 30-60% lower than the current euro. Unfortunately, if they can't make the structural labor reforms necessary, then they have no choice but take the 'easy' way out and devalue. It never works, ask Argentina... again and again...

 

On the plus side, once they leave it will be a great time to buy assets in those nations! Save your pennies for some beach front property in Greece!

Wed, 04/03/2013 - 22:38 | 3406511 LetThemEatRand
LetThemEatRand's picture

"Save your pennies for some beach front property in Greece!"  

That's pretty much the plan, but the banks plan to use your pennies for said property.  Think the Corzinenenon.  Has a certain ring to it.

Wed, 04/03/2013 - 22:56 | 3406677 Harbanger
Harbanger's picture

All modern western "democracys", including Argetina, are and have been taking the easy way out of their mistakes thru devaluations.  Is it really the easy way out?  Are'nt their govts just passing on their debt to future generations and their children?  You say "once they leave it will be a great time to buy assets in those nations!".   No, once you destroy the fabric that makes a Nation, there is no justice, there is no gain, for you or anyone.

Wed, 04/03/2013 - 22:00 | 3406531 Everyman
Everyman's picture

Social Instability, bitchez!

Wed, 04/03/2013 - 22:04 | 3406541 disabledvet
disabledvet's picture

Target 2 has already sidelined the Banks...they're buying US equities, Swiss francs, oil futures, etc...etc. that thing is going to implode and will bankrupt the ECB. "and that will be the end." http://www.youtube.com/watch?v=aGmAmJFUvzM

Wed, 04/03/2013 - 22:22 | 3406598 Croesus
Croesus's picture

+1,000 for posting The Doors.....

 

I agree, SHTF is coming quick......did you see that 200 year Dow-Gold ratio chart the other day? Two words: Positive feedback.

The manipulations are becoming too frequent now, and I'm of the opinion that the crash is going to be here before we know it.

Thu, 04/04/2013 - 07:45 | 3407289 michigan independant
michigan independant's picture

merging assets and to be announced spinouts my old friend

Wed, 04/03/2013 - 22:22 | 3406573 rogeliokh
rogeliokh's picture

Any news? GOLD 1542 lost another $15, is this Asia session? Asian Session: Tokyo 11 p.m. to 8 a.m. European Session: London: 7 a.m. to 4 p.m. North American Session New York noon to 8 p.m. Who is in charge from 8 PM to 11 PM EST???

That's the Central Banks attack.. Looks the same as the FX Currency intervention

been there watch that many times..

Wed, 04/03/2013 - 22:23 | 3406602 Croesus
Croesus's picture

Shit....they could announce that there's only half as much gold in the world as previously thought and the Fed would still drop the price on it.....

 

Wed, 04/03/2013 - 23:07 | 3406704 DoChenRollingBearing
DoChenRollingBearing's picture

$1545, $1535, $1235...  It doesn't matter to me what the price of paper gold is.  I will keep on buying more as money comes in.  Has worked great so far, even as prices go up and down.

BTFSpike too!

Thu, 04/04/2013 - 00:12 | 3406858 Peter Pan
Peter Pan's picture

The stranger thing is that they keep announcing there is twice as much money in the world as there used to be yet gold and silver are going in the opposite direction.

Thu, 04/04/2013 - 00:53 | 3406904 SK8boarder
SK8boarder's picture

The reason why the web site crashed is because the demand is so friggin huge,,,  watch for bitcoin to skyrocket as more people to take money out of banks and buy Bit coin hands over fist...  look for gold to get pouned over and over again,, is it fair no.. but they will keep doing it. look golds down another 14 bucks right now,, In the next few weeks you might just see a blood bath in PMs will PMs pay off big one day yes,, But were a long way from that.. So save your PMs and get your beak wet,,, what the Hell,,, I say BURN the BERNAK and buy bitcoins

Wed, 04/03/2013 - 22:39 | 3406641 rogeliokh
rogeliokh's picture

F*cking crooks...!!! SEC watching porn, while Central Banks are tossing cards..

Wed, 04/03/2013 - 23:14 | 3406729 Joebloinvestor
Joebloinvestor's picture

Everyone will see that ZOMBIES are real.

They will comprise the EU economy.

Thu, 04/04/2013 - 00:03 | 3406846 Peter Pan
Peter Pan's picture

So let me get this straight. The stock market goes up while the economic indicators are going down.

The answer is simple. Are you part of the stock market or are you part of the indicators?

Depending on which camp you belong to, both sides make sense.

I hold gold and silver so I don't need to make sense of the whole show.

Thu, 04/04/2013 - 00:09 | 3406849 Peter Pan
Peter Pan's picture

A now for a terrible joke which I think portrays the current inexplicable disconnect between reality on teh ground and the indicators and assurances by men like Barosso.\:

Two men.

One is on a tight rope some 150 metres off the ground between between two buildings.

The other is getting a bl...job from an 80 year old toothless woman.

Yet both are thinking the same thing.

What are they thinking?

Don't look down.

Thu, 04/04/2013 - 01:14 | 3406925 Burt Gummer
Burt Gummer's picture

Europes falling down and morans still doing the harlem shake.

 

http://www.youtube.com/watch?v=ZS2Z19yTuPI

Thu, 04/04/2013 - 01:35 | 3406966 piliage
piliage's picture

That Greek data is really bizzare. It looks like they are counting EU bailouts as loans to residents? Why? No consumer will get a sniff of tha money. And why the melt up in deposits in 2013? I'd think the last place anyone would want their money is a Greek bank after what just happened in Cyprus. Odd.

Thu, 04/04/2013 - 04:16 | 3407107 frenchie
frenchie's picture

don't see the elephant in the room (IT) on the figures...

Thu, 04/04/2013 - 07:05 | 3407226 Sandmann
Sandmann's picture

I am perturbed by UK Retail Sales suggesting they have increased in real terms despite a 30% devaluation against the US Dollar; 50% against the Yen and 20% against the Euro. We have also seen a record trade deficit increasing over 2011.

I wonder if these charts are recording Local Currency Spending which means Price Increases due to Devaluation feed-through would simply depict lower sales volumes as a Retail Sales Increase in local Currency

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