A Greek, no rather a European tragedy

Europe’s economy just isn’t getting anywhere. In the fourth quarter of 2009, the old continent grew only 0, 1% compared to the third quarter. Compared to the fourth quarter of 2008, the economy shrunk almost two percent. In Europe, France seems to be a rare exception showing an economic growth of 0, 7% in the last quarter on 2009... The Netherlands are just up to average with results that balance around the European mean. This year probably will not be any better.
If all goes well, the economy will grow a mediocre 1, 5% in 2010 and 2% in 2011, which is a far from satisfactory rebound after such a depression like crisis.

Europe’s Weakness
Europe’s bad economic performance is also reflected in the quarterly results of many European companies. According to Bloomberg 75 percent of all American companies did better than expected, but only few European corporations managed to meet expectations
European profits might not have been that bad, but revenues are stagnating or even declining. This means that many European companies are still busy streamlining (read: laying off people) their business.

A mediocre growth of 1, 5 to 2 percent is most likely to result in an ample labor market in the years to come. Randstad Human Resources has recently confirmed this. They do observe economic improvement, mostly in the United States though.
According to Statistics Netherlands (CBS), the only bright spot in the Dutch economy during the fourth quarter of 2009 was our export. Consumer demand was down and overall investments were disappointing. Most European corporations seem very reluctant to undertake any investments. This can be derived from, for instance, the annual and quarterly reports of Dell and Hewlett Packard, two world-wide operating companies. Both IT giants observe that demand in the United States and Asia has significantly risen while Europe is staying behind.
Dell remarked also that most of the demand comes from multinationals upgrading their ‘outdated IT infrastructure’. Mid- and small caps have not yet started this process.
It can be inferred that even American entrepreneurs still haven’t been convinced by the economic recovery and that credit facilities are not yet fully in place.
However, one can also conclude that 2010 will be a profitable year for Dell and Hewlett Packard. If the US economy gets more flesh on its bones and if Microsoft Windows 7 stands all tests the economy might grow surprisingly fast in the second part of the year.

Greek tragedy
Whether Europe will experience the same level of growth as the United States remains to be seen. In the first place, economic growth is traditionally lower in Europe. Secondly, the PIIGS countries pose a real threat to the economic recovery in Europe. Companies like the Swedish/Swiss ABB clearly doubt the power of the European economy. In 2010, this company will drastically cut back $ 3 billion instead of $ 2 billion. The company clearly doubts whether private investments will actually rise after all economic incentives will have ended. In order to beat its competitors, the company wants to lower its costs significantly.

But there is another problem. In order to join the European Union and enjoy the benefits of the Euro, Greece falsified its official statistics, which is a deadly sin. As a result, Greece was able to borrow money on the same terms as Germany. And borrowing it did. A lot and with a great deal of verve. The country now faces a deficit of 12, 7%.
For years, the ECB, the European Central Bank tolerated this and even lended Greece all the money it needed. All good things come to an end, and now the international financial markets are turning against this country. Greece has become the symbol of undisciplined financial and fiscal policies of many EU Member States. Greece itself does not cause a huge problem. The country represents less than 3% of the European GDP. The danger of infection is what really matters. After Greece, the financial market may turn against the other PIIGS countries and maybe even against Belgium and Austria. That can seriously damage the Euro.

Because it is unclear how the EU will combat the crisis, many investors are already getting rid of their Euros. It also affects the policies of the European Central Bank. The ECB will not be able to raise interest rates in the short run. The combination of higher European interest rates and strict austerity policies in the PIIGS countries will burden these countries only even more. But at the same time, the PIIGS countries are keeping the rest of the EU hostage.
The current crisis has shown the weaknesses of the monetary union. A monetary union cannot function without a political union, but that process is far from finished.