New European recession to be signalled by the UK budget next week
Posted on 17 June 2010 with 2 comments from readers
Britain’s new coalition government will announce its emergency budget next Tuesday with tax rises and extensive public spending cuts inevitable. This is a decisive step in the fiscal and monetary squeeze that will force Europe back into recession in a deflationary spiral.
Countries across Europe have all been announcing big spending reductions and tax rises to bring spiralling deficits under control.
Just because the growing economic crisis in Europe is proceeding at a less dramatic pace than the financial shock of autumn 2008 does not make it any less significant. Indeed, the long build up makes this crisis all the harder to meet. Financial markets will not recover quickly when this is fully digested.
Italian revolt
This week 100 Italian economists wrote an open letter to Il Sole calling for an end to the deficit cutting, tax raising and unemployment boosting policies of European governments.
These policies destroy aggregate demand and will eliminate the growth rates necessary to reduce debts. In fact, deflation is the debtor’s nightmare as the real burden keeps increasing.
But in the absence of centralized leadership Europe behaves like a group of competitors and not the economic giant it has become. Politicians are behaving like sheep or shopkeepers and certainly not statesmen. The weak
European institutions are no match for this challenge either.
Therefore, a new age of austerity is arriving be default and lack of imagination. This is the approach followed in the 1930s with disastrous results. Will it be any different this time? Unfortunately the laws of economics have not been repealed since then.
A serious and long-term slowdown and certainly outright recession for many European nations is thus inevitable. What does that mean for the rest of the world?
For the US it means an inventory-building-only recovery will not translate into something more permanent. Europe is a major export market and European currencies are devaluing against the dollar too.
China not too big to fail
China will also find a major export market sunk while it struggles to cope with the massive distortions of its own recent reckless stimulus measures. This is an emerging market growth cycle at its overheating point like Dubai in 2008 only very much bigger.
As Europe, the US and finally China succumb to a double dip recession the implications for commodity prices are clearly alarming. Oil prices will tumble and a long period of sub-average or negative growth would bring a return of 80s style price levels.
There was a foretaste of this after the Asian Financial Crisis of 1997-8 with oil prices falling below $10 a barrel. We can only hope that this time will prove different. But Europe is a bigger consumer of oil than Asia was in the late 90s.
Perhaps this is all inevitable after the leveraged fuelled boom of the 2000s but that is hardly a comforting thought for the next decade. Will the debt to cure a debt problem work any better in the US or the crazy spending programs in China? After a boom comes a bust, and the bigger the boom the bigger the bust.
2 Comments posted by readers:
You´re right. But its much worse than you think. Europe is in a double death spiral because the population drops. Germany is particularly hard hit. For the first time Germany lost 300.000 people and is now below 82.000.000. 650.000 births to over 850.000 deaths .. you do the math – and more young people are leaving than coming. This is happening since more than 20 years and the elites tried to fill up the economies with people from the Middle East and Africa but this tactic went wrong because they are badly educated. In 2009 only 12000 Turks made a masters degree. Half of them are going back to Turkey despite they are born in Germany. 20% of Turks leave school without qualifications. The others have only minimal skills. Turks in Germany are mostly from Eastern Turkey where they live in totally backward patriarchal structures. These structures were imported and the parents do not care about their children and their new home country. They simply live on the dole with mega big families. Turks are fanatic nationalists and only care about Turkey not where they live. Money is not invested – it will fly back to Turkey. Its like the US and Mexico. When the US suffer the money to Mexico will stop. Its like an addictive relative or a beggar. And then there are the Turkish Kurds, Lebanese Kurds, Iraq Kurds, Afghans, Arabs. All these people hate each other and murder each other in Germany. They rob, steal, slay and disturb the peace. There are whole schools without one ethnic German. This phenomenon has led to an exodus of the Germans and more foreigners were let in to offset the population decline but this made the situation worse and more Germans are leaving. The same thing is happening in the Netherlands, Belgium, France, Sweden. Germany has the highest emigration figures since 1953 and the Netherlands the highest since records began. Liberalism will kill Europe. Brussels alone has 68% foreigners. European politicians are of the worst kind! This system will crash. On holidays, Germans went to Spain and Greece because it was cheap. Now with the euro prices are like in Germany. Why should they go there anymore? Germans will go to Poland or to Turkey because they are cheaper. At the same Moment the ethnic German population declines and strangers are taking their place who will never go to Spain or Greece. Nobody will take the place of the German tourist. Europe is dead and in massive decline. And then there were the 1990 when Germany decided to let in 3 million Russian-Germans. But most of these Russians were not young they were in their 30s or older. 40% of them are now over 65 and sinking the titanic. Many of them never found a job and live on the dole since 20 years! The crazy thing is all imported people can not work in their learned professions because the professions are not recognized. This is insanity and goes on. European politicians are out of control and import the worst human beings. They do not understand economics, cultures and geography. This will take several generations to repair. And if all of these aging population dies, in the next 10 to 15 years, there will be a mega downturn. Worse than this crisis. Germany alone will import several million “educated” people in the next 15 years. Its just the same of the last 20 years, and the last 20 years were bad. There is high potential that it will go from bad to much worse.
The governments should have seized all the failed banks and wiped out the owners and debt holders. (I know the billionaires run the government here in the USA and would never let the government make them take their own losses, but I can dream, can’t I?)
Then the government should have used the stimulus money to send every taxpayer a debit card for $3,000 over a period of a year, so as to stimulate real demand. Cash wouldn’t work because too much would be spent paying debt, or saved by stingy folks like me. I would like a nice new giant screen TV and a new telescope to replace the one drowned in Katrina. I need a trailer and 9 hp motor for my aluminum boat too. Buying all that with government money would create a lot of jobs, Obama.
Actually, I stole the idea from the economic writer on MarketWatch. I had the idea to randomly send some taxpayers cash payments, which wouldn’t be as efficient at creating demand and jobs, as debit cards would. And the risk of inflation might be greater, since a lot more money would be needed to see any job creation with a lot of it going into the local banks and to the credit card folks. But I did have my idea first. I want an electric impact wrench too. The impact sockets are getting lonely after nearly five years.