Europe: Out of Sight, Out of Mind?

Sometimes we get clients like our friend “Michael” who ask us questions that remind us that we need to refresh certain topics that the media seems to have lost track of. We certainly aren’t looking to rehash old news, but some subjects simply get dropped long before the story is finished. This is certainly the case with the financial crisis in Europe, and we thought we should share a recent exchange we had with our client over this subject.

Do you remember just a few years ago when the unraveling of Greece seemed to dominate the financial headlines?  Or even more recently when the small country of Cyprus took center stage for a few days? You may recall the enforced capital controls on citizens, the freezing bank accounts, and eventually Cyprus giving a 50% haircut to large bank depositors (translation: stealing half of their money) to prevent a total run on the nations banks. For some investors, this was a series of events to forget as the pain of remembering is simply to great.

Interestingly, we haven’t heard much out of the troubled Eurozone lately, and you may be like “Michael” assuming the temporary respite of bad news to mean that things must be getting better.

But are they?

To help us address this complicated issue let’s first look at the unemployment picture across the pond:  According to a report last week in The Economist, the jobless rate in the “Eurozone” as a whole will increase from 11.2%-12.3% in 2014! If we take a deeper look at some of the individual countries we find even worse news: Portugal 18.6%, Greece 28.4%, Spain 28%.  Ouch.  How can an economy recover without jobs being created?

Another bad sign occurred two weeks ago when bond rates in Portugal spiked almost 150 bps (to nearly 8%) in just 2 days a midst the resignation of two key ministers.  When countries are over-indebted to the level that Portugal is (and most of the developed world for that matter), 8% rates are a recipe for insolvency.

This is all happening despite the fact that back in May 2011, Portugal received a €78B bailout package that was supposed to “fix” their problems… Sadly, Portugal is expected to need another rescue package by the end of this year. Does this sound like a healthy European economy to you?

Of course Greece has already received 2 bailouts, and is now reneging on their commitment to public sector reform targets.  This is happening mostly because citizens are rioting over the imposed austerity conditions… and any politician who wants to get re-elected  is therefore saying whatever they have to say to make voters happy again. And this is just the tip of the iceberg of what is going on in Europe…

Here are two links that help paint more color into this picture…

http://www.economist.com/blogs/freeexchange/2013/07/oecds-annual-review-employment?fsrc=rss

http://www.telegraph.co.uk/finance/comment/liamhalligan/10164742/Eurozone-crisis-over-Not-by-a-long-long-way.html

So we ask in return: Why isn’t the “Eurozone” still a focal point of the media?

As always, we would love to read your comments and questions and we encourage you to feel free to share our post with your networks.

Categorized in: Blog

This post was written by Conscient Capital