Is the EZ economy headed towards recession? Post author By Kevin O’Rourke Post date February 24, 2016 Here. H/T Eurointelligence. Categories In Economic Performance 18 Comments on Is the EZ economy headed towards recession? ← Save the Eurozone – Scrap the €500 Note → Ireland: Country Report 2016 18 replies on “Is the EZ economy headed towards recession?” Did it ever leave the last recession ? The only treatment it got was a big dose of money via QE. Monetary policy no longer generates growth. Everybody can support retaining the €500 note. Chicago School followers would save lots on helicopter operating costs, Keynesians would need to bury fewer bottles of currency in disused coal-mines. The article points to a historical trend of the EU lagging the US into recession. That will be further compounded by a QE policy that was never going to deliver, except for holding up that assets prices of the 1%, and borders on being intellectually dishonest for a variety of reasons. Liquidity is being pumped into banks and everybody knows that it either stops there or is immediately diverted to the asset gambling tables. At the same time banks are being told, and compelled through new bank ratios, to deleverage their balance sheets, and hold oodles of contingency cash. The end result is that many large EZ banks are only marginally connected to the real economy. The latest results for a few EZ banks show the relationship between ‘loans to customer’ and ‘total assets’. Loans: Total assets: % loans to total assets Deutsche Bank : 1719BN: 428BN: 24.9% Soc Generale: 1338BN: 405BN: 30.3% BNP: 1994BN: 682BN: 34.2% BOI 131BN: 85BN: 64.9% It is crystal clear that providing QE to institutions where lending funds to the real economy is almost a peripheral activity (as low as 25% in case of DB), makes little sense in terms of stimulating the aforesaid real economy; if indeed that was the intention in the first place. One can of course argue that total assets on bank balance sheets are not truly reflective of total assets, as banks are compelled to record winning derivative bets (assets) separately from losing derivative bets (liabilities), but that would be a moot point. To further compound the problem, the ECB has spent the last 8 years haranguing anybody who will listen, about the need for structural adjustments, aka short term contracts, firing at will, and other labour cramming down measures, that are clearly going to make any potential victim think three times and pray out loud before he or she parts with any discretionary funds. And of course the vast majority of working people in the EZ are potential targets for structural adjustment. At heart, QE as implemented up until now, is a intellectual fraud perpetrated on the 99%. Europe will see no growth until income inequality starts to reverse, and until people begin to have confidence that they can live their lives fully again, freed from the relentless onslaught of the elite and their ‘structural adjuster’ armies. @seafoid, GDP in an economy could collapse by 90%, but once it ticks up to 11% of where it was before the collapse over a couple of quarters the recession is over because the economy is growing again. It’s not that intuitive. Thinking that the end of recession equals recovery in the minds of voters may have cost the outgoing Irish government its majority in the next Dail. @JR QE was about compensating the rich for losing money in 08. The only point of neoliberalism is to make the rich richer now that it can’t even generate 2% inflation. The % of gdp earned by the richest 1% in the US went from 9% in 1979 to 24% today. 9tn in QE generated 14tn in gdp and 35tn in asset bubbles. Zizek described capitalism as “compulsive, purposeless dynamism” and the description fits the market perfectly. All the algos trading incessantly while the big macro picture deteriorates in the background. All QE did was pump up asset values in the absence of any supporting data. The weakest EZ banks – Commerzbank, Intesa, Siena – of 2010 remain the weakest. And the EZ has no resolution scheme. EZ inflation now a whopping 0.3%. Without QE it could have been 0.5%. Neoliberal Central Bankers have one single target. Inflation. And none of them can manage it. The Commission’s latest report on Ireland. http://ec.europa.eu/europe2020/pdf/csr2016/cr2016_ireland_en.pdf Annex A pages 76 to 80. “No progress in limiting discretionary powers to change expenditure ceilings. These have been revised up repeatedly on the back of better than expected growth, i.e. beyond specific and predefined contingencies. No changes have been made to the legal framework defining the conditions under which expenditure ceilings can be revised. Limited progress in broadening the tax base. Announced measures implementing internationally agreed efforts to reduce tax avoidance are likely to contribute to broadening the tax base. However, changes to the universal social charge, postponement of the revaluation of self-assessed property values used to calculate local property tax liabilities and introduction of further tax credits in the 2016 budget are likely to narrow the tax base. A report on tax expenditure was published recently but is limited in scope as it covers only a limited number of tax expenditures and does not cover VAT at all.” The debate in the media today, all participants confounded, on the eventual outcome of the laborious process of counting, repeatedly, by hand, the ballots completing, is surreal. Neither the political class nor the electorate is even vaguely interested in confronting the economic and budgetary facts. This Indo coverage is representative of general sentiment. We need to spend more money. Where it is to come from is just a matter of inconsequential detail. http://www.independent.ie/irish-news/election-2016/eu-delays-releasing-damning-report-on-ireland-34491135.html ‘Completing’ should read ‘completed’ in previous post. @BeeCeeTee I was saying the same thing more and more during the run up to the election recently… about how end of recession doesn’t equal recovery to how things were. It does feel that it was an important message the outgoing government never communicated. Things were NEVER going back to the way they were, but when the govt talked about recovery many people thought that’s what should be seen and felt. The idea that all those “good” jobs that people had in construction and related areas were going to flood back. Meantime, whether we’re in recession or not (or will be, or not) Europe does seem to be building up a lack of economic growth over WAAAY too long a period. That’s the big issue, not a couple of quarters that might be slightly below zero. I think that the best news about construction is that the jobs are not flooding back. One of a small number of key factors about the Celtic Bubble is that we hit an utterly unsustainable 14% of employment directly in construction, and probably more like 20% when one takes account of related services and manufacturing. Anything significantly above 8% directly employed in construction at the top of the cycle should be a huge red flag signalling a future crash. As of Q4 2015, we are still back around the 6 point something percent mark. That gives us room to boost investment significantly without having things go off track. A kick in the arse for austerity and paying off unsecured bondholders delivered today. With growth FUBR in the EZ this can only be repeated in other mythologies. I wonder if what Varoufakis said about Noonan influenced many voters. Back on topic with Gavyn Davies http://blogs.ft.com/gavyndavies/2016/02/28/global-slowdown-spreads-to-the-eurozone/ Two quotes, nevertheless, from Matt Cooper in the SBP, on the fate of FG and the possibility of a FG/FF coalition. “Irish Water would be a significant hurdle to cross: Fine Gael might gladly sacrifice it, belatedly, but the European Commission could make that difficult to achieve. ” and “Despite all the successes about which he [Taoiseach] has boasted – 130,000 new jobs, the departure of the troika allowing for the restoration of economic sovereignty,…” These views, it seems, imply no contradiction not just for Matt Cooper but Irish media in general. Not for Colm McCarthy, however. http://www.independent.ie/opinion/columnists/colm-mccarthy/fix-the-issues-that-led-to-failure-in-first-place-34493431.html The only adjustment needed to this analysis is that “workers” in Ireland are not, and have never been, given equality of treatment by the state cf. other thread on Broadening the Tax Base. EZ data for the year to February shows deflation of 0.2%. FT reports Draghi will try another dose of QE. Feeding electronic money to the rich is deflationary. Doesn’t work anywhere. As the saying goes…”the only way to grow wealth, is to not spend wealth”. Population is aging, low birth rates, people are crippled with taxes and charges, VAT taxes on top of duty taxes etc. The Irish State will have to introduce more efficient models for its services. Just one example, the high cost of holding people in prison should be brought down. 90K cost / year / prisoner should be reduced to 10K / year. For existing and new services the mentality of introducing the most complex, costly, bureaucratic and “in effect” unworkable systems should be discouraged. There are quiet a few services which are no longer functioning. Unless efficiency is introduced, cuts will have to be made in O.A. pensions as there will not be enough workers to support the retirees. For a US example, there was a recent article on FT about the city of Philadelphia, facing a 5.7 billion $ in pension deficits. Therefore growth via consumer spending is under pressure, and in fact may not cut it anymore. Things are very bad in the US. Another month of Stagnant wages. Probably no different in Europe. Stagnant SnP 500 sales. Probably no different in Europe. Stocks trading near record highs cos of CB support but no data to back up. Lehman 2 looks unavoidable. Macroeconomics is a complete mess. Comments are closed.