Plagued by seemingly perpetual debt problems due to large welfare states, the Euro-zone, the 17 countries that make up the European Union, has fallen into a recession for the second time since 2009:
The euro zone debt crisis dragged the bloc into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday.
The French and German economies both managed 0.2 percent growth in the July-to-September period but their resilience could not save the 17-nation bloc from contraction as the likes of The Netherlands, Spain, Italy and Austria shrank.
Economic output in the euro zone fell 0.1 percent in the quarter, following a 0.2 percent drop in the second quarter.
Those two quarters of contraction put the euro zone’s 9.4 trillion euro ($12 trillion) economy back into recession, although Italy and Spain have been contracting for a year already and Greece is suffering an outright depression.
A rebound in Europe is still far off. The debt crisis that began in Greece in late 2009 is still reverberating around the globe and holding back a lasting recovery.
Analysts said even the euro zone’s top two economies were likely to succumb in the final three months of the year.
International Data on Living Standards Show that the United States Should Not Become More Like Europe
I’m not a big fan on international bureaucracies, particularly the Paris-based Organization for Economic Cooperation and Development. The OECD, funded by American tax dollars, has become infamous for its support of statist pro-Obama policies.
Over the last few years, Tim Carney of the Washington Examiner has highlighted some of the connections between the Obama Administration and Big Pharma, especially when it comes to ObamaCare. The sort of cronyism that we’ve seen in the Obama Administration, despite the harsh rhetoric toward corprorations, is typical of Washington culture. However, it’s not a uniquely American phenomenon.
During a speech at the European Parliment, MEP Daniel Hannan, who has been hailed as a free market hero, used the example of the reclassification of vitamins and minerals in the EU to note the problem of the “precautionary principle,” which plays right into the hands of special interest groups seeking legislative and regulatory favors.
His brief speech is worth a listen:
Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro ($13 billion) bailout.
Swiftly backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a “good bank”.
Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion.
The deal has caused friction between Russia and Germany, which orchestrated the bailout. As noted in the excerpt above, many wealthy Russians had money in Cypriot banks, but have now seen their assets disappear over night.
Every now and then, you’ll read a story about how politicians are targeting 401(k) accounts as an extra source of revenue to deal with the long-term entitlement crisis or to guard against losses during an economic downturn. Back in 2009, leftist groups pushed Congress for more government involvement in the private retirement system, including some sort of public alternative — because, you know, Social Security has worked out just peachy.
The proposal out of Cyprus that would give depositors a “haircut,” a high-percentage levy on their deposits, has prompted fears in the United States that some future administration or Congress could eventually put financial assets, such as bank accounts and 401(k), in their crosshairs. Rep. Billy Long (R-MO) has proposed legislation that would prohibit the federal government from taking such an action.
But could something like that ever actually happen in other European Union countries? Over at Reason, Ed Krayewski points to an thought-provoking and troublesome op-ed out of Ireland that wonders what the future of that country’s depositors looks like:
Former Rep. Barney Frank (D-MA) made a profoundly absurd statement (you’re shocked, I’m sure) during an appearance on MSNBC’s Morning Joe on Friday. Frank, who did not seek re-election last fall, said that European countries can afford to spend substantial sums of money on welfare states because the United States military protects them:
Former Rep. Barney Frank, D-Mass., a proponent of single-payer health care, said this morning that European countries can only afford to spend money on the “social safety net” because they don’t have to spend much on defense due to the security provided by the United States military.
“One of things we do is stop subsidizing Western Europe,” Frank said on Morning Joe as he argued for lower military spending. “After their empires crumbled, Europe decided to leave the task of maintaining global security to America so they could use their resources to build their social safety net,” he added, drawing on Zbigneiw Brzezinski’s “Strategic Vision.”
Written by Simon Lester, a trade policy analyst at the Cato Institute. Posted with permission from Cato @ Liberty.
In the past, a “trade war” was something to be avoided at all costs. It meant a spiral of protectionist measures: one country would adopt some form of protectionism, and its trading partners would respond in kind. The impact on the global economy could be disastrous.
Today, by contrast, trade conflict often involves a tit-for-tat litigation process in which countries challenge each other’s trade barriers before the World Trade Organization. The result can actually be beneficial, as successful complaints usually lead to the removal of trade restrictions. As a result, the “trade wars” of today may lead to less protectionism rather than more.
Recent developments related to Argentina’s trade policy provide a good illustration. Last year, Argentina decided to take a much more interventionist and protectionist approach to trade policy, with a goal of encouraging domestic production. To take an example provide by The Economist, through the use of import licensing restrictions, Argentina effectively required foreign mobile phone makers to assemble and package phones in Argentina rather than exporting them for direct sale there.
Other countries took notice of Argentina’s measures, and a number of them spoke up at a WTO meeting in March of this year. But no formal complaint was filed at that time.
Economic problems in Europe, which is experiencing record high unemployment in addition to sovereign debt crises, have caused a lot of concern in markets across the globe. And while our own economic growth in the United States has been less than pleasing, we haven’t felt the brunt of the Europe’s problems — though they are certainly offering a preview of what we can expect.
But there have been concerns that the United States may be slowly slipping into another recession, no doubt made worse by a dismal manufacturing report released yesterday:
The ISM manufacturing index for June came in at 49.7, lower than expected and signaling manufacturing activity has fallen back into contraction territory. That won’t help stocks much.
New orders crashed last month, falling to 47.8 from 60.1, and that’s probably a large part of why the index contracted, given that other measures looked better. As factory activity is often a leading indicator of overall economic momentum, this report is not a good sign for the outlook.
Paul Krugman may have picked a fight with the wrong country. Desparately trying to show that austerity doesn’t work, Krugman posted a graph showing stale GDP growth in Estonia, a tiny Eastern European country, during the worldwide recession. This caught the eye of Estonian President Toomas Hendrik Ilves, who blasted Krugman on over four separate tweets earlier this week:
Let’s write about something we know nothing about & be smug, overbearing & patronizing: after all, they’re just wogs: http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/
Guess a Nobel in trade means you can pontificate on fiscal matters & declare my country a “wasteland”. Must be a Princeton vs Columbia thing [Ilves went to Columbia for undergrad.]
But yes, what do we know? We’re just dumb & silly East Europeans. Unenlightened. Someday we too will understand. Nostra culpa.
Let’s sh*t on East Europeans: their English is bad, won’t respond & actually do what they’ve agreed to & reelect govts that are responsible.
The problem with Krugman’s conclusion is that Estonia is actually one of the few Eurozone countries that is doing quite well; a point that Dan Mitchell, an economist at the Cato Institute, noted yesterday:
On Friday, Americans were given another dose of bad economic news as the Bureau of Labor Statistics announced that the economy created only 69,000 jobs in May, far below the consensus of 150,000 jobs. While there is some silver-lining in the report thanks to number of people actively seeking works rising slightly, the news itself is still painful given that the pace of the recovery has been so dreadfully slow and far below predictions given by the White House when the stimulus bill was passed in 2009.
Locked in a increasingly tough bid for re-election with Mitt Romney, President Barack Obama has a leg up in swing states, which are doing better than the rest of the nation. But the bad economic news in the rest of the nation will no doubt carry over to these states if the pace of the recovery remains tepid and job creation doesn’t pick up.
But President Obama also doesn’t seem to quite understand the economic problems facing Americans. During a recent campaign stop, he said that his economic plan is to help them by “thingamajigs”: