http://www.zerohedge.com/news/financial-decline-europe-continues
The Financial Decline In Europe Continues
Via Mark E. Grant, author of Out of the Box,
As Industrial Production falls -0.6% in Europe and as the economy shrinks -0.2% there is once again a good reason to pause to consider the ramifications for this going forward. As part of the data release this morning Germany and France did somewhat better than expectations but it was fairly marginal while the rest of the EU-17 continues to be mired in difficulties. Overnight LCH increased the margin requirements for both Spain and Italy as the banks of Spain keep increasing their borrowings at the ECB which is now at an all-time record. More troubling perhaps is the recent release of data from Italy which showed that their sovereign debt had ballooned to $2.437 trillion and the trajectory is more than troublesome. In 2010 and 2011 Italy’s debt was expanding by $7.90 billion per month but in 2012 Italian debt has increased by $11.73 billion per month for a projected $141 billion by the end of this year. In fact the Italian economy is shrinking by about -2.5% while their debt is growing by 5.8% which is the baseline for an unsustainable situation if these trends continue.To make matters worse Italy’s Industrial Production is down -8.2% from a year ago and down -1.4% in the last month. I think Italy must be reassessed in light of the recent data and I would project further downgrades for the country and an increase in their bond yields as people recognize the severity of their problems. To me it looks increasingly likely that both Spain and Italy will soon line up at the feeding trough which is going to strain Europe, in my opinion, past the limits of what France and Germany can bear and then all of the superlatives and all of the great hype are going to come face-to-face with a very tough reality I am afraid.
Learning from the Numbers
When you sit back and take a hard look at the last two years you begin to learn a few things. If you just stick to the actual data and forget the rhetoric that surrounds it the picture becomes clearer. Each and every projection for Greece, Spain and Italy that has been forecast by the EU and the IMF has been wrong; dead wrong. This would be in overly optimistic to the point that anyone relying on these projections and investing on their basis would lose money as a result of believing in them. I submit then that it is a mistake going forward to accept their numbers as reliable and you should note this in your thinking.
When I stop to consider all of the talk, all of the bravado and all of the concentration wasted on Firewalls I am convinced that it was all a great waste of time. There is only $65 billion left in the EFSF and the ESM is not in existence and a tremendous amount of money has been spent not just by the Stabilization Funds but in the Target2 program and by the ECB trying to ring fence the core nations of Europe and none of this has stopped or helped the recession in both Italy and Spain. Europe has wasted a giant amount of time and money battling with windmills, the ever present evil speculators of course, but none of this has helped the two countries regain a sound financial footing and the austerity measures have done nothing except to make matters worse as the economies of these two countries suffer from their imposition. The European game plan has been flawed in my view and we are all beginning to see some actuality which is that all of the grand plans have made matters worse. In some sense Europe is damned if they do and damned if they don’t but there is no way to avoid the conclusion any longer that they are stuck in a quagmire from which there is really no escape without a lot of serious pain.I think it can be accurately stated that the political rhetoric is no better in America than in Europe. The problem with Europe is that there are seventeen countries using the Euro each with their own national interests that are becoming more and more polarized between the healthy nations and the financially impaired countries. In fact there are only a few nations left in Europe that are in decent shape so that the bedrock is crumbling from beneath the construct and everyone wants everyone else to pay the bills which is becoming impossible as Germany, given its finances, increasingly finds itself in a very lonely corner. The key to winning in Europe is to watch what they actually do and not what they say they are going to do or what they might do. Time after time we have been disappointed by the actuality of their response and to hang your hat upon grand proclamations, such as the recent one by Draghi, is going to prove a very costly mistake. The correct approach is neither doom and gloom nor sunny optimism but to watch exactly what they do, what they implement, and react accordingly.
My final comment of the day is that Europe is getting worse and not better. Whether you turn your attention to Greece, Spain, Italy, Portugal or even Ireland; it is getting worse. Nowhere on the Continent are things improving and even in France and Germany the financial strains are beginning to show. It is not a question of Euro-bear or Euro-bull; it is just the numbers as they come rolling out month after month. It is the banks, it is the sovereigns and grand visions must, in the end, give way to the facts.
“The very powerful and the very stupid have one thing in common. Instead of altering their views to fit the facts, they alter the facts to fit their views... which can be very uncomfortable if you happen to be one of the facts that needs altering.” -Doctor Who
http://www.zerohedge.com/news/spanish-bank-borrowings-ecb-continue-parabolic-rise
Spanish Bank Borrowings From ECB Continue Parabolic Rise
Even as the Spanish (and Italian) sovereign bond market foundered in July, hitting record yields following stark realizations just how insolvent Spain is, a more sinister development was taking place: Spanish banks, completely disconnected from the funding needs of the sovereign, were receiving a daily bailout from the ECB to the tune of over €1 billion. As the Bank of Spain released hours ago, in July Spanish banks borrowed a record €375.5 billion from the ECB, a new record, and a €38 billion increase from June. Sadly, as the red line in the chart below demonstrates, the parabolic increase in Spanish bank borrowings from what is effectively Germany, continues unabated. Indicatively this is comparable to the US banking system obtaining a roughly $500 billion rescue in one month for the 8th month running. Year to date, Spain has received €257 billion in ECB "borrowings" which we put in quotes as this money will obviously never be repaid, which means simply that Europe continues to be entrenched in the most diabolical version of Stockholm syndrome, where the hostages and the kidnappers have now realized they can only exist as long as the other is alive. If there was any good news, it is out of Italy, whose ECB bank borrowings rose by "only" €2 billion in July to €283 billion, and leaving Spain far ahead in the direct borrowing insolvency race. Of course, this was offset by the far more complicated ponzi scheme where banks can and continue to issue government-backed bonds. In fact, as reported yesterday, Italian sovereign debt rose to a new all time high. Because at the end of the day remember: sovereign or financial debt - it doesn't really matter in Europe, an asset-starved continent where the two terms are now effectively synonymous, and where the law of fungible funding and communicating vessels in the context of debt has never been more in your face.
Spain and Italy relative funding needs:
And cumulative:
and.....
http://www.zerohedge.com/news/european-q2-gdp-contracts-02-german-growth-beat-offset-plunge-zew
European Q2 GDP Contracts 0.2%, German Growth Beat Offset By Plunge In ZEW
- Double Dip
- Finland
- France
- Germany
- Gross Domestic Product
- Italy
- Netherlands
- Portugal
- Recession
- recovery
- Slovakia
- SocGen
- Sovereign Debt
- Volatility
The two major overnight data points were European Q2 GDP which printed at -0.2%, or the expected continuation of the European double dip. As SocGen explains, these numbers continue to paint an all too predictable picture of growth in Europe, with expansion in Germany driven by exports and consumption, growth in France stagnating and deep recessions continuing in southern Europe. The European GDP pattern is now expected to be a copy of 2011. Amongst the country details, growth beat expectations in Germany (+0.3 q/q), Austria (0.2%), Slovakia (+0.7%) and the Netherlands (0.2%) but this was offset by deep declines in Finland (-1.0%) and Portugal (-1.2%). Amongst data already published we know Italy declined 0.7%, Spain declined 0.4% and Belgian GDP declined 0.6%. And while the market was clutching at the German GDP beat straw, it was the German ZEW Survey which threw a cog in the spikes of German economic perception, after the number came at a whopping -25.5, declining for the 4th consecutive month and far below expectations of -19.3, and a drop from the already negative -19.6. Finally, while there may be hopes that this is the bottom, already weak IP data confirms that the weakness in Europe has continued into Q3 and as such as the continental contraction will likely not stop contracting for the foreseeable future.
More on Europe's dimming prospects from SocGen
Looking beyond the headline numbers for a second, it is clear that the ebb and flow of the sovereign debt crisis has generated considerable volatility in the GDP data as firms and households first put their spending plans on hold and then subsequently relax them as financial conditions improve somewhat. This has generated a particularly strong inventory cycle in some countries with imports subsequently leaping to make up an earlier rundown in stocks. This almost certainly explains the jump in French imports which grew 1.8% q/q in Q2 and the marked volatility in French investment which expanded 0.6% in Q2 following a 0.8% contraction in Q1.
IP data suggest weakness extended into Q3
The same volatility is also reflected in the monthly data, where euro area industrial production decline 0.6% m/m in June following a revised 0.9% expansion in May. As such this leaves industrial production down 0.5% q/q in the second quarter and suggests that activity might have taken another lurch down coming into Q3. Certainly this would also be the message of the ZEW survey for August. Our euro area GDP forecast for the year as a whole remains unchanged at -0.4%.
German GDP again above expectations in Q2
German Q2 GDP expanded 0.3 % qoq, which was stronger than median expectations of 0.2% (SG 0.1%), and although not as large an overshoot over the median as in Q1, it was the second successive upside surprise in German GDP.
There are no quantitative details with this flash estimate of German GDP, but the usual qualitative commentary from the statisticians said that net exports added to GDP, and private consumption also expanded (which is a relief, given soft retail and car registration data). Business investment declined, unsurprising given the downward trend in business sentiment.
As always in August, there were revisions to history, going right back to 1991. The key change is that the rebound in 2010 was stronger (4.0% rather than 3.6%), while the recession is still calculated to have depressed 2009 GDP by 5.1%. As a result of the revisions, the level of GDP in Q1 2012 is now thought to be 0.7% larger than previously.
The outlook for Q3 is for somewhat more subdued growth, in our view. Given the slowdown in global trade in the most recent past – judging by Asian trade figures – it is unlikely that net exports will add to growth. Also, German exports to the US were up 19.6% yoy in April/May, which is likely to be difficult to sustain. Meanwhile, with business confidence sliding, it is hard to see a rebound in business investment spending. However, positive momentum in private consumption is likely to persist, and construction investment, too, looks likely to grow solidly for some time to come.
ZEW survey unimpressed by stock market recovery
Against expectations, the ZEW’s Index of economic sentiment deteriorated further in August, sliding to a new 8-month low of -25.5 from -19.6 in July. The expectation of a slight recovery was probably based mostly on the fact that the German stock market has rallied substantially – by some 16% since the start of June. Well, despite the usual reasonable fit between these two series, this did not work out this time around. The current situation was also judged more negatively by the private sector forecasters that make up the panel for this survey, with that index down to 18.2 from 21.1, though this was a little better than median predictions.
The upshot is that, if anything, market forecasts for economic growth are still being adjusted downwards. That said, today’s upside surprise on German Q2 GDP will have tempered that. It is interesting to note that, despite the downbeat assessment on the economy, the profit situation was judged to be better than one month ago in seven of the 13 sectors for which the ZEW canvasses. The sectors where better profits were seen were: banking, insurance, chemical/pharma, utilities, services, telecoms and technology. Profits were seen much more pessimistically in autos and in engineering.
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