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Saturday, February 16, 2013

Eurocrisis and market sell-off just starting

Market sell-off is just beginning- MSN Money: " . . . . political scandals threatened to bring down pro-austerity governments in Italy and Spain. Elections are due in Italy and Germany later this year, elections that could destabilize the current focus on budget cuts and bank rescues. With youth unemployment in Spain above 56%, Greece falling behind on its budget targets and former Italian Prime Minister Silvio Berlusconi promising tax cuts if he returns to power, the situation is primed for another scare. . . ."


The real euro crisis is just starting - Matthew Lynn's London Eye - MarketWatch: ". . . . There are two big issues. The peripheral countries were always uncompetitive against their neighbors in northern Europe. On top of that, there are deep cuts in government spending as part of the austerity packages demanded as the price of staying within the single currency. And, to make things even worse, even with the lower bond yields of recent weeks, capital is still a lot more expensive for companies in peripheral Europe than it is in Germany. That makes it a lot more expensive for them to invest.The result has been deep and accelerating recessions. Across the euro zone as a whole, even the ECB now estimates a 0.3% contraction for 2013. The actual number will be worse. In individual nations, there will be deep downturns. Unemployment and poverty are already soaring. The numbers are starting to look horrific. In Spain, unemployment is now at 26% of the work force. In Greece it is 26.8%. Companies are still shedding jobs as the economy contracts. There is little chance it will get any better. The IMF forecasts that as far out as 2017, growth in Spain will still only be 1.7% — too low a rate to create jobs. So mass unemployment will become the norm for Spain and Greece and soon Italy as well. The question then is, how much pain can these societies take before they have had enough? The 1930s — the last decade that saw unemployment on anything like this scale — gives us some guidance. In the U.S., unemployment hit 24% in 1933, during the depths of the Great Depression. . . ."


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