by
Adam Taggart
EU
by
Alasdair Macleod
Executive Summary
- France: Bet on a bankruptcy of the French government
- Italy: Will not be able to fund its debt obligations without external help
- Spain: The best outcome at this point is years of grinding financial repression
- UK: At growing risk of a big upward spike in price inflation, leading to a currency crisis
If you have not yet read Part I, available free to all readers, please click here to read it first.
Individual States
France
Perhaps the cameo event that best describes French attitudes was the recent correspondence between Maurice Taylor Jnr, head of Titan International, the tire manufacturer, and Arnaud Montebourg, France’s Minister for Industrial Renewal. While it was good theatre, the serious points were that on average a French worker at an industrial plant works for three hours a day, and that the Minister resorted to threats that any Titan products imported into France would be “inspected by the relevant authorities with extra zeal.” That is the way things are done in France: Upset the Minister or a government functionary and none of your product gets to market, as Mr Taylor will shortly find out.
France has an official unemployment rate of about 10.5%, which would be somewhat higher if it were not for three-hour days in many of the factories. Taxes on employers are among the highest in Europe, and employment legislation is so onerous that employing an extra hand is the last option for all private sector employers.
Large companies, such as Peugeot-Citroen, generally tolerate poor labour productivity and sub-standard quality products – partly because the unions are strong, and partly because senior managers look to government to “help” by providing subsidies and by other means. Consequently, private-sector manufacturing is not competitive, and sales in the troubled Eurozone are collapsing. Peugeot’s share price says it all.
Decades of government protection have left France’s industrial sector in the weakest position of the larger Eurozone economies. Smaller businesses, outside the major cities, are heavily reliant on agricultural produce and hospitality, much of which is undeclared, untaxed, and untaxable. Furthermore, France’s farmers have long been beneficiaries of the EU’s agricultural subsidies, and have never had to be efficient.
Europe: Welcome to the Domino Effect
PREVIEW by Alasdair MacleodExecutive Summary
- France: Bet on a bankruptcy of the French government
- Italy: Will not be able to fund its debt obligations without external help
- Spain: The best outcome at this point is years of grinding financial repression
- UK: At growing risk of a big upward spike in price inflation, leading to a currency crisis
If you have not yet read Part I, available free to all readers, please click here to read it first.
Individual States
France
Perhaps the cameo event that best describes French attitudes was the recent correspondence between Maurice Taylor Jnr, head of Titan International, the tire manufacturer, and Arnaud Montebourg, France’s Minister for Industrial Renewal. While it was good theatre, the serious points were that on average a French worker at an industrial plant works for three hours a day, and that the Minister resorted to threats that any Titan products imported into France would be “inspected by the relevant authorities with extra zeal.” That is the way things are done in France: Upset the Minister or a government functionary and none of your product gets to market, as Mr Taylor will shortly find out.
France has an official unemployment rate of about 10.5%, which would be somewhat higher if it were not for three-hour days in many of the factories. Taxes on employers are among the highest in Europe, and employment legislation is so onerous that employing an extra hand is the last option for all private sector employers.
Large companies, such as Peugeot-Citroen, generally tolerate poor labour productivity and sub-standard quality products – partly because the unions are strong, and partly because senior managers look to government to “help” by providing subsidies and by other means. Consequently, private-sector manufacturing is not competitive, and sales in the troubled Eurozone are collapsing. Peugeot’s share price says it all.
Decades of government protection have left France’s industrial sector in the weakest position of the larger Eurozone economies. Smaller businesses, outside the major cities, are heavily reliant on agricultural produce and hospitality, much of which is undeclared, untaxed, and untaxable. Furthermore, France’s farmers have long been beneficiaries of the EU’s agricultural subsidies, and have never had to be efficient.
by
Adam Taggart
by
Alasdair Macleod
There was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened. However, there are some differences when compared with past meetings that need explaining:
- The European Council is being asked to consider permitting the European Central Bank to have a regulatory role alongside national central banks “as a matter of urgency by the end of 2012.” When this new super-regulator is eventually established, perhaps the ECB might be able to recapitalize banks directly. This was needed three years ago; the Eurozone will be lucky not to have a new banking crisis in the next few months, let alone by the year-end.
- A bail-out for Spain’s banks is agreed in principle, but it is to be funded by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) is up and running. The EFSF has no money and relies on drawing down funds from all member states including Greece, Spain, Italy, Ireland, and Portugal, and the chances of the ESM being ratified by the individual Eurozone parliaments is very slim. We are told that Spain’s banks need about €100bn, but how much they really need is not known.
- The ESM will not rank as a prior creditor to the disadvantage of bond holders. This is a positive step, but makes it more difficult for national parliaments to authorize the ESM.
The big news in this is the implication the ECB will, in time, be able to stand behind the Eurozone banks because it will accept responsibility for them. This is probably why the markets rallied on the announcement, but it turned out to be another dead cat lacking the elastic potential energy necessary to bounce.
e another dead cat lacking the elastic potential energy necessary to bounce.
The Growing Pressures Likely to Blow the Eurozone Apart
by Alasdair MacleodThere was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened. However, there are some differences when compared with past meetings that need explaining:
- The European Council is being asked to consider permitting the European Central Bank to have a regulatory role alongside national central banks “as a matter of urgency by the end of 2012.” When this new super-regulator is eventually established, perhaps the ECB might be able to recapitalize banks directly. This was needed three years ago; the Eurozone will be lucky not to have a new banking crisis in the next few months, let alone by the year-end.
- A bail-out for Spain’s banks is agreed in principle, but it is to be funded by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) is up and running. The EFSF has no money and relies on drawing down funds from all member states including Greece, Spain, Italy, Ireland, and Portugal, and the chances of the ESM being ratified by the individual Eurozone parliaments is very slim. We are told that Spain’s banks need about €100bn, but how much they really need is not known.
- The ESM will not rank as a prior creditor to the disadvantage of bond holders. This is a positive step, but makes it more difficult for national parliaments to authorize the ESM.
The big news in this is the implication the ECB will, in time, be able to stand behind the Eurozone banks because it will accept responsibility for them. This is probably why the markets rallied on the announcement, but it turned out to be another dead cat lacking the elastic potential energy necessary to bounce.
e another dead cat lacking the elastic potential energy necessary to bounce.
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