In the construction sector, seasonally adjusted production fell by 3.3% in the euro area (EA16) and by 2.9% in the EU272 in February 2010, compared with the previous month. In January, production decreased by 0.9% in the euro-area and by 1.1% in the EU27.
Compared with February 2009, output in February 2010 dropped by 15.2% in the euro area and by 10.2% in the EU27.
TABLE: The whole European Union shows an uneasy trend: Government deficits shot from 2.3% of EU 27 GDP to 6.8% in 2009 while revenues declined from 44.6% to 44% of GDP. Total government debt rocketed from 61.6% to 73.6% in 2009. Data: EurostatSo far neither national governments nor the EU have implemented other changes than pondering new taxes and cuts in social spending despite the wave of unemployment. Youth unemployment remains above 20% in 24 of the 27 EU states.
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Will Europe Need Another €3 TRILLION?
While talk about possible debt:GDP ratios in the wake of Europe's worst financial crisis has climbed above the 100% threshold this blogger wonders why there is no serious debt reduction discussion.
Raising the politically comfortable debt ceiling to one annual GDP means the EU27 are out on the market to shop for €3.1 Trillion in sovereign debt. That sounds like a rat race in yields to me. Add in a bit more creeping inflation from high energy and food prices, currently standing at 1.4% for the Eurozone after 0.3% in 2009, and Greece's 8+% yields may look good once the debtors shown in the graph below - courtesy of Culture of Life News - will need to raise fresh capital. (Click to enlarge)
Greece still fills the headlines, diverting attention from the maybe fatally indebted UK where the government has so far chosen to monetize the debt, leading to the fall of Sterling to new record lows against most currencies.
The true litmus test for the Eurozone will be Spain. The country with 25% unemployment is hardest hit by the downturn in construction. In March, construction contracted 6.6% YOY. Spanish banks suffer from high consumer and property loans written in the boom years when mainly Germans and Britons scrambled for a second home in the Spanish heat.
Note that France has higher debts than Italy, on a par with the most eastern EU member states.
Governments used to tap capital markets for a credit-fuelled boom may soon face a rude awakening. This is not a run-of-the-mill recession as debts have never been higher than now in history and Europe has 3 seemingly unsurmountable structural problems:
- No commodity and energy resources
- An aging population
- The highest labor costs in the world
As the ideas around the Eurozone have been floating from Germany leaving the Eurozone to kicking out Greece the integrationists in the EU will try hard to keep the Euro alive as it is.
A failure of the Euro would immediately lead to an immediate re-evaluation of the whole concept of the EU if this body is unable to actively mitigate the crisis stemming from its lax oversight and the lowest central bank interest rates on record.
But remember, headline grabbing news from Greece fill the space in newspapers that should be devoted to the sickest EU member: Great Britain, whose structural deficit is bigger than that of Greece.
Taking the Eurozone crisis as an example I am left with the question, who will come to the UK default party first?