Euro ‘crisis’ masks global recovery
http://www.thestar.com/business/article/807322--olive-don-t-worry-euro-crisis-masks-global-recovery
There’s a little less to the current volatility in financial markets than meets the eye.
Somehow an isolated Greek fiscal crisis has been conflated into a looming global double-dip recession and a collapse in stocks and bonds that will have North American investors fearful again of reading their RSP and 401k statements.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” Ian Kelson, a bond fund manager at the London unit of U.S. money manager T. Rowe Price, said of the admitted shambles of Greek public finances. “It’s across the board.”
But what, exactly, is across the board?
Mostly good news, as it happens.
Canada and Australia have come through the Great Recession of 2008-09 with flying colours. The industrial revolutions in China and India continue apace. And the U.S. is in the midst of one of the fastest and most powerful economic turnarounds in history, posting a remarkable 11-per-cent swing from “negative” to positive GDP growth in just 14 months.
Canada’s jobless rate is easing. The U.S. on Friday recorded a second straight month of net new job creation, or 290,000 net new jobs, the biggest jump in four years. U.S. corporations are reporting stunning profit gains that no forecaster would have thought possible a year ago.
Cassandras in search of a compelling narrative regard as signs of imminent catastrophe the euro’s 18-per-cent drop against the U.S. dollar; a weakening in commodities prices; a tripling over the past two years of the average European nation’s ratio of deficits to GDP; and the weekend’s emergency summits of the 16 eurozone heads of government and of finance ministers from all 27 European Union (EU) nations to strategize a way out of a pan-European debt crisis.
You can just as easily take from those same indicators that the euro’s plunge has made German, British and Dutch exports more competitive in the lucrative U.S. market. That cheaper European imports and crude oil have reduced North Americans’ cost of living.
And that after months of dawdling over Athens’ wretched public finances, European leaders have acted boldly in approving a $142-billion U.S. bailout of Greece. And for good measure, the eurozone members and the International Monetary Fund agreed to create a huge, $968-billion fund to assist eurozone nations in fiscal distress.
Yes, many of Europe’s economies are running uncomfortably high public deficits – though some major economies like Germany and Italy are actually in better monetary shape than the U.S.
That was the price European and North American governments paid for massive stimulus spending to prevent the Great Recession from becoming a Great Depression. And for rescuing a global banking system from total meltdown. In all but a very few cases, like Greece and Iceland, the resulting increased debt is manageable. It will become more so with a return to sustained, robust GDP growth.
The global economy is not Greece, which accounts for a mere 2 per cent of European GDP. The chronic fiscal mismanagement, unaffordable social programs and rampant corruption in that cradle of Western civilization are a textbook example of how not to run an economy.
It will be seen in time that ripples, not shock waves, are radiating from Athens. From Portugal to Latvia, a Europe that has been living beyond its means, much as the U.S. has for the past decade, is now imposing harsh austerity measures to restore fiscal order.
All three major parties contesting Britain’s May 6 general election campaigned on pain, not sugar-coating the government spending cuts and tax increases on the near horizon.
Financial markets notoriously overreact to real and imagined dramatic news. Stocks, commodities and the euro have been overdue for a healthy pullback, or “correction” in Street parlance. And the specter of sovereign debt defaults – no matter how remote a prospect – gave trigger-happy traders the reason they sought to abruptly devalue everything.
There’s an obvious silver lining to Europe’s current debt challenges. Eurozone members have learned, finally, of the price to be paid for having reneged on their pledge when the eurozone was created in the late 1990s to keep deficits to below 3 per cent of GDP.
They also have reason to transcend lingering national parochialism and confer on the European Central Bank the same sweeping powers of crisis intervention of which the Bank of Canada, the U.S. Federal Reserve Board and the Reserve Bank of Australia are capable.
And that emergency summit of European leaders on the weekend? Widely perceived as an act of desperation, it was in fact a renewed resolve to strength a European economic union that has been under construction for generations, and whose evolution has coincided with an unprecedented 65 years of peace among Europe’s major powers.
That’s a legacy the continent’s leaders have every reason to extend. And they will
______________________________________________________________
More alleged good news for the country.
Perhaps disaster is not imminent
and the next few years to at least 2012 will be good ones.
http://www.thestar.com/business/article/807322--olive-don-t-worry-euro-crisis-masks-global-recovery
There’s a little less to the current volatility in financial markets than meets the eye.
Somehow an isolated Greek fiscal crisis has been conflated into a looming global double-dip recession and a collapse in stocks and bonds that will have North American investors fearful again of reading their RSP and 401k statements.
“It’s not just a European problem, it’s the U.S., Japan and the U.K. right now,” Ian Kelson, a bond fund manager at the London unit of U.S. money manager T. Rowe Price, said of the admitted shambles of Greek public finances. “It’s across the board.”
But what, exactly, is across the board?
Mostly good news, as it happens.
Canada and Australia have come through the Great Recession of 2008-09 with flying colours. The industrial revolutions in China and India continue apace. And the U.S. is in the midst of one of the fastest and most powerful economic turnarounds in history, posting a remarkable 11-per-cent swing from “negative” to positive GDP growth in just 14 months.
Canada’s jobless rate is easing. The U.S. on Friday recorded a second straight month of net new job creation, or 290,000 net new jobs, the biggest jump in four years. U.S. corporations are reporting stunning profit gains that no forecaster would have thought possible a year ago.
Cassandras in search of a compelling narrative regard as signs of imminent catastrophe the euro’s 18-per-cent drop against the U.S. dollar; a weakening in commodities prices; a tripling over the past two years of the average European nation’s ratio of deficits to GDP; and the weekend’s emergency summits of the 16 eurozone heads of government and of finance ministers from all 27 European Union (EU) nations to strategize a way out of a pan-European debt crisis.
You can just as easily take from those same indicators that the euro’s plunge has made German, British and Dutch exports more competitive in the lucrative U.S. market. That cheaper European imports and crude oil have reduced North Americans’ cost of living.
And that after months of dawdling over Athens’ wretched public finances, European leaders have acted boldly in approving a $142-billion U.S. bailout of Greece. And for good measure, the eurozone members and the International Monetary Fund agreed to create a huge, $968-billion fund to assist eurozone nations in fiscal distress.
Yes, many of Europe’s economies are running uncomfortably high public deficits – though some major economies like Germany and Italy are actually in better monetary shape than the U.S.
That was the price European and North American governments paid for massive stimulus spending to prevent the Great Recession from becoming a Great Depression. And for rescuing a global banking system from total meltdown. In all but a very few cases, like Greece and Iceland, the resulting increased debt is manageable. It will become more so with a return to sustained, robust GDP growth.
The global economy is not Greece, which accounts for a mere 2 per cent of European GDP. The chronic fiscal mismanagement, unaffordable social programs and rampant corruption in that cradle of Western civilization are a textbook example of how not to run an economy.
It will be seen in time that ripples, not shock waves, are radiating from Athens. From Portugal to Latvia, a Europe that has been living beyond its means, much as the U.S. has for the past decade, is now imposing harsh austerity measures to restore fiscal order.
All three major parties contesting Britain’s May 6 general election campaigned on pain, not sugar-coating the government spending cuts and tax increases on the near horizon.
Financial markets notoriously overreact to real and imagined dramatic news. Stocks, commodities and the euro have been overdue for a healthy pullback, or “correction” in Street parlance. And the specter of sovereign debt defaults – no matter how remote a prospect – gave trigger-happy traders the reason they sought to abruptly devalue everything.
There’s an obvious silver lining to Europe’s current debt challenges. Eurozone members have learned, finally, of the price to be paid for having reneged on their pledge when the eurozone was created in the late 1990s to keep deficits to below 3 per cent of GDP.
They also have reason to transcend lingering national parochialism and confer on the European Central Bank the same sweeping powers of crisis intervention of which the Bank of Canada, the U.S. Federal Reserve Board and the Reserve Bank of Australia are capable.
And that emergency summit of European leaders on the weekend? Widely perceived as an act of desperation, it was in fact a renewed resolve to strength a European economic union that has been under construction for generations, and whose evolution has coincided with an unprecedented 65 years of peace among Europe’s major powers.
That’s a legacy the continent’s leaders have every reason to extend. And they will
______________________________________________________________
More alleged good news for the country.
Perhaps disaster is not imminent
and the next few years to at least 2012 will be good ones.