Euro Zone Danger Zone

With all the bad news around the world lately — from ISIS savagery to North Korean nuttery, from Russian power plays in Ukraine to Chinese saber-rattling in the Pacific, from the Ebola outbreak in west Africa to Boko Haram mass kidnappings — nobody’s paying too much attention to Europe.  That’s unfortunate, because Europe is a mess right now.

Economically, Europe is a basket case.  In the second quarter of this year, Germany’s economy — the largest on the continent — shrank by 0.2 percent.  The most recent data indicates that business growth continued to slow in August.  In France, the economy is completely stagnant, producing no growth for several quarters while unemployment is above 10 percent.  The French economy minister resigned yesterday in a public disagreement with the country’s very unpopular President about whether France should follow austerity policies or policies that funnel government money directly to households; the economy minister said he felt compelled to speak out to try to avoid the European Union’s “descent into hell.” 

IMG_5596The unemployment situation in Europe is terrible.  Statistics presented by the European Central Bank president at an international conference last week are daunting — they show European unemployment growing while American unemployment is declining and indicate that the recession that hit the world in 2008 really hasn’t ended in the Eurozone.  The statistics also show that people who aren’t highly educated are losing their jobs by the truckload and that jobs are vanishing in the business sectors that traditionally employed less educated people — like construction and heavy industry.  The service sector is holding steady, which means that if you’re looking for a job in the Eurozone and you don’t have advanced degrees, you’re lucky to get a position as a waiter.

When economies fail and bitter people can’t find jobs to fill their time and feed their families, political and social unrest follows closely behind.  It therefore shouldn’t be a surprise that we are seeing a deeply troubling increase in anti-Semitism in Europe, from public protests triggered by the Israeli-Hamas fighting in Gaza to attacks on synagogues and social media hate speech.  The fact that some Europeans are returning to virulent anti-Semitism of their forefathers indicates that the EU initiative really hasn’t materially changed a continent where prejudices run deep.

The economic, political, and social situation in Europe is a toxic mix.  Other crises have distracted attention from the various Eurozone woes, but we shouldn’t ignore what’s happening across the Atlantic.

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Uh Oh (Again)

The news from Europe has not been good for some time now — but today may be a turning point into even more negative territory.  As the United States enjoyed the Labor Day holiday, equity markets across Europe plunged by an average of 4 percentGermany’s DAX took the hardest hit, falling by more than 5 percent.

It’s not hard to understand why European investors are troubled.  Greece, Spain, and Portugal all are struggling with serious debt problems, and recently Italy, one of Europe’s biggest economies, also has tumbled into distressed territory.  In the meantime, the large, more solvent northern European countries — particularly Germany — have had to prop up their profligate southern European partners.  Germany’s financial support of free-spending Eurozone countries hasn’t gone down well with German voters, who delivered a stinging rebuke to the ruling party in regional elections.

Interestingly, some political leaders in Germany and elsewhere seem to see the ongoing problems as a reason for an even closer political and economic union between the nations of Europe — whereas European citizens, in contrast, appear to be yearning for more control over the destinies of their own countries.  The depths of the Eurozone debt problems are not yet fully understood, and analysts wonder how much worthless debt is held by European banks and whether the piecemeal bailout efforts will ever staunch the outflow of investor confidence.  Given all of these circumstances, it’s not hard to foresee more hard times ahead in the Eurozone.