There's No Engine for Global Growth Pt 2 (Europe)


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Yesterday we assessed how China will not longer be an engine for economic growth going forward. Today we look at Europe.


The world continues to believe that Europe is somehow savable. The reality is Europe is in worse shape than most people can imagine. Case in point, Spaniards took €75 billion out of Spanish banks in July. Why is this a big deal? The entire Spanish banking system’s market cap is just €114 billion!!!!


            Fears Rising, Spaniards Pull Out Their Cash and Get Out of Spain


In July, Spaniards withdrew a record 75 billion euros, or $94 billion, from their banks — an amount equal to 7 percent of the country’s overall economic output — as doubts grew about the durability of Spain’s financial system.


The withdrawals accelerated a trend that began in the middle of last year, and came despite a European commitment to pump up to 100 billion euros into the Spanish banking system. Analysts will be watching to see whether the August data, when available, shows an even faster rate of capital flight.


More disturbing for Spain is that the flight is starting to include members of its educated and entrepreneurial elite who are fed up with the lack of job opportunities in a country where the unemployment rate touches 25 percent.


According to official statistics, 30,000 Spaniards registered to work in Britain in the last year, and analysts say that this figure would be many multiples higher if workers without documents were counted. That is a 25 percent increase from a year earlier.


As I’ve stated many times before, Spain is an absolute disaster. The Prime Minister denied needing a bailout for weeks, then demanded €100 billion in one week, procured the funds and went to see a soccer match (no joke).


Now he’s openly threatening the ECB. Not a good idea when your entire banking system is on life support to the tune of €300 billion+ from the ECB.


Spanish PM Rajoy challenges the European central bank and Germany


Spain will consider seeking extra aid from Europe on top of a 100 billion Euro rescue of its financial sector but does not see any need for new conditions, Prime Minister Mariano Rajoy said in an interview published in European newspapers.


That one paragraph says it all: give me more money with no conditions.


This is coming from a man who demands €100 billion in bailout funds, threatens to blow up the EU, and then goes to watch a soccer match once he’s got the money.


However, in some ways you can’t blame Rajoy for this attitude as it appears to be endemic for Spanish politicians:


            Catalonia asks for €5bn bailout from Spain


Spain's north-eastern region of Catalonia, which represents around a fifth of the country's economic output, will tap a state liquidity facility for just over €5bn, a spokeswoman for the region's economy head has said.


We will not accept political conditions for the aid," she added. Of Spain's 17 regions, Valencia and Murcia have also said they would need recourse to the fund.


Again, give me more money with no conditions. Simply incredible.


Meanwhile, pretty much all of Europe is in recession now, including Germany. True, the ESM bailout fund has been ratified… but the question remains who actually has funds to support it (Spain and Italy are meant to supply 30% of its funding… and they’re the ones who will be requesting a bailout!).


So don’t count on Europe providing an economic growth to speak of. Which means… all that’s left is the US. And we’ll be assessing that situation tomorrow. Until then…


Swing by for more market commentary, investment strategies, and several FREE reports devoted to help you navigate the coming economic and capital market changes safely.


Graham Summers






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