6/6/2012 7:29 PM ET|
Last chance to save Europe
The euro mess we'd love to ignore is slowing US employment and bringing down the global economy. If something isn't done by June 17, it could be too late. Here's why.
Since the eurozone crisis started more than two years ago, skeptics have been quick to dismiss the simmering problem as much ado about nothing.
Shoot, they're just a bunch of socialists getting their comeuppance, right? And the Greek economy is insignificantly small, at around $300 billion. That's worth just 2% of the U.S. gross domestic product.
While the financial markets have been jumpy over the issue since it started, the slow, drip-drip deterioration of the situation across the Atlantic has started to bite in very real ways. The unemployment rate is rising again here at home, factory activity has stalled around the world, and much of Europe has fallen into a new recession.
According to Bank of America Merrill Lynch economist Ethan Harris, there are "growing signs of a synchronized global slowdown." From China to India, Hong Kong and Australia, GDP forecasts are being slashed as global trade slows. Harris sees "a significant risk of a global recession" later this year or in early 2013.
As a result, something that once seemed innocuous and maybe a little funny has assumed a deadly seriousness. There's a key date to mark on your calendar: June 17. That's the date of the next parliamentary election in Greece. And without substantial action between now and then, the situation gets much worse for everyone.
The coming crunch
Make no mistake about it: Europe's problems are now ours. The U.S. economy -- a rare bright spot in the world over the past six months -- is fading fast. Time is running out.
Spain and Greece are suffering from capital flight as deposits are pulled out of their banks and sent elsewhere. In Spain, this outflow has totaled $124 billion, or around 10% of annual GDP. Tax revenues are plunging, worsening the debt/deficit ratio at the heart of the problem. Credit-rating agencies are issuing downgrades to banks and sovereigns alike. Spain is fast losing access to capital markets as borrowing costs return to last year's highs. It's ugly.
In the United States, temporary tail winds from things like auto production, warmer-than-normal weather, savings drawdowns and credit-card usage are fading. Unresolved issues -- such as the backlog of foreclosures hitting the housing market, a broken job market and flat wages -- are still in play.
And within months, a bitterly divided U.S. government will face the "fiscal cliff" I recently warned about -- a debt/deficit decision that will make last year's debt-limit debate seem like child's play.
But long before we get there comes the Greek election of June 17, which could elevate the anti-bailout, radical left Syriza party and its dynamic young leader. He has threatened to stop payments on Greece's debt and force renegotiation of his country's bailout agreement with the rest of Europe and the International Monetary Fund. This could ultimately kill the idea of a common currency: the euro.
The stakes couldn't be higher. Former German Vice Chancellor Joschka Fischer says it bluntly: "If the euro falls apart, so will the European Union, triggering a global economic crisis on a scale that most people alive today have never experienced."
In the context of all of this, the political fabric that binds the eurozone together is fraying badly, as countries and institutions group themselves into two corners.
Troubled nations including Spain and Greece -- supported by Italy, France and the European Commission -- want more leniency and help as they try to rebalance their economies, address structural inefficiencies, pay down debt, close budget deficits, recapitalize banks and return to growth -- all at the same time.
This pro-growth bloc is pushing hard for things like a eurozone bank deposit insurance program (ending bank runs via a eurozone version of the FDIC, the deposit insurance program in the U.S.) using eurozone bailout funds to recapitalize weak banks (instead of making Spain's government help its banks, which would take pressure off of its budget deficit); and the issuance of "eurobond" debt backed by the entire eurozone (to push down borrowing costs for troubled nations). They also want the European Central Bank to step up its stimulus efforts.
The pro-austerity bloc, including Germany and the Netherlands, wants progress on things like economic reforms, constitutional commitments to balanced budgets and state asset sales before any of this happens. The worry is that cheap money, in the form of ECB loans to the financial system, could unleash dangerously high inflation.
Salvos are being exchanged, and positions are hardening. The ECB is caught somewhere in the middle, with its executive board dominated by pro-growth nationals while the German Bundesbank still wields enormous influence.
You can see who is ahead in this debate in the results of the recent French presidential election, which replaced pro-austerity Nicolas Sarkozy with pro-growth François Hollande. This has changed the balance of power and has emboldened the pro-growth faction.
What we have now is an epic game of chicken spiced with daily doses of rumor and conjecture about who will win.
Exchange-traded funds and stocks mentioned in this article: SPDR Gold Shares (GLD), iShares Silver Trust (SLV), Market Vectors Gold Miners (GDX), Global X Silver Miners (SIL) and Great Basin Gold (GBG).
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This is a runaway train looking for a place to wreck. This eurozone crap is nothing but a bunch of losers. They have been buoying their economies with the Phoney Maroney Eurodollars, and George Sorros is ready to pounce. Here's the problem: We do not have the safety, like a circuit breaker in an electrical circuit, to protect us from this kind of calamity. We should not have those kind of ties to the other countries in the world. This global economy crap is going to bring us down, just a matter of time when the can is no longer in any kind of shape to be kicked down the road. Could be that the meglo dream of the superwealthy will all come crashing down, Global Economy= Global Government.
Anthony - are you serious?
"You can see who is ahead in this debate in the results of the recent French presidential election, which replaced pro-austerity Nicolas Sarkozy with pro-growth François Hollande. This has changed the balance of power and has emboldened the pro-growth faction."
So, that's what they are calling socialism these days in France eh - "pro-growth." We'll see how "pro-growth" policies work out for all the blood suckers when the German's say the heck with this and take their ball and go home.
THEN it is our turn in the US. When SS, Medicare, Medicaid, SSI and a paltry 1.5% interest payment on our debt takes up almost 100% of all Federal revenue collected.....and it's only getting worse....we'll see how that "pro-growth" movement.....the occupy crowd.....all the liberals....we'll see how that works out for them.
Shoot your story straight - and keep your political view/slant out of your articles. Don't try to hide the fact that SOCIALISM is gaining traction in Europe cause no one has any money except the responsible nations by calling it a "pro-growth" movement. Liberal hacks the media has become. Ugh.
will find the problems.
I lived in Detroit in 1981-83, so I do have plenty of experience with economic crisis actually!!!
Has anyone here read Paul Craig Roberts' "Collapse at Hand" piece, which was fresh out of the can on Tuesday? Who will loan us any more money when our bonds pay less than the going inflation rate? For answers to tough questions like these, I would recommend looking-up Robert's piece soon, since the impending collapse in Greece is very likely not the worst of our worries by far!!!
Wow, Now they're concerned ! What happened to yesterday ? Oh wait, Markets rose on the HOPE of the EU working it out. Well, we are all too familiar with that here in the USA. Doesn't work to well.
The bottom line is that I see in the future that some sort of compromise will be reached. The Germans and Netherlands will get some of the austerity measures kept in place but France, Italy, Greece, even Spain will recieve some of the help they need to have growth & jobs. No one wants to lose their autonomy or economy, but they're going to have to give a little on both sides of this. The alternative is chaos.
History 101 to all bloggers. The last depression was deepened by:
1) Raising Taxes
2) tightening lending standards
3) Creating heavy import Tariffs
When people fail to remember history they are doomed to repeat it.
Global work ethics are not all equal. Who's big idea was it for establishing a 'Global Economy'........nice, real nice! Maybe it is time to re-instate the import tarriffs to level the monetary playing field.
I take care of MY house, YOU take care of YOURS.
Can anyone believe that on 17th of June because of Greek elections the hell will brake loose?
Greek economy is a drop in comparison to global economy which is the pacific osean.
Therefore, it is better to find something or someone else to blame.
For all those liberal Americans that want socialism........Hea, look at Greece....how's that working out.
Or better yet.....Go join them.
Why is it that Americans are so quick to help the world? Here we are nearily 16 Trillion in debt & freely giving countries like Packastan & even Russia Billions in aid. All any country has to do is ASK the gullible Americans & they will come a running with a boat load.
Every time there's a fire in the world.....Well guess what....ASK the gullible Americans & they will come a running.
Gee Wiz...how'd we get so stupid..........liberal. No Wonder the world hate's us......Hea Look, here comes the gullible American Army again.
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