Burdens Felt From Offshore

The European Union (EU) stands in contrast to our recently buoyant US economy.  The US shows a healthy 236,000 jobs created, unemployment down to 7.7%, a 10-year T-bill near 2%, retail sales up by 1.1%, and we expect growth in the 1.5% range despite fiscal cliff injuries.  There are worries, but it’s generally a decent story.  Regretfully, the EU’s economy is expected to contract by 1 to 1.5% in 2013.  Europe’s fortune matters to US consumers because of our exports to the EU and our US investments in the EU.  Those make EU gloom communicable.  A European recession and Washington’s dysfunction are palpable burdens for our economy.

Three years ago, the EU suffered from a handful of overspending countries and economies hurt by housing bubbles; Portugal, Ireland, Italy, Greece and Spain (aka PIIGS).   Great Britain, France, and Germany stood ready to help the PIIGS back onto their feet with few loans and aggressive advice or the evils of budget deficits.

Portugal continues to limp along.  Ireland accepted bitter austerity and is healing.  Greece defaulted on some bonds and took EU funding (largesse mostly from Germany).  Italy enjoyed a few years of welcomed caretaker management, but recently voters chose political and budgetary confusion.  Spain opted for austerity with just enough loans to ward off bankruptcy.   Currently PIIGS unemployment rates are; 16.9%, 14.1%, 11.7%, 26.4% and 26%, respectively.  They are in a poor position to lead any recovery.

Meanwhile, France chose a left-wing leader who hiked personal taxes and made doing business in France less attractive.  Unemployment stands at 10.4% and was heading up but 3 of 5 labor unions agreed to moderate employment regulations that have long dissuaded employers from hiring.  That may staunch growth in unemployment.

Britain has 7.8% unemployment, 10-year government bonds yielding about 2% and a budget deficit remarkably like that in the US.  Britain chose austerity instead of pretending it can spend its way out of deep debt.  Still, Britain’s economic outlook lacks growth.  Germany’s unemployment rate is 5.9%; bond yields stayed at a low 1.5% and the economic outlook is also flat.

It is unclear what spark might help the EU to pull itself out of the economic mire.

Alan Daley is a retired businessman who lives in Florida and who follows public policy from a consumer’s perspective.