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Mix-Ansicht- Richebächer über Europa und den Euro - NickLeeson, 16.06.2000, 17:16
Richebächer über Europa und den Euro
Im FleetStreet-Letter schreibt Richebächer heute über Europa:
<h3>The End of Malaise in the Euro-zone</h3>
Dr. Kurt Richebacher
Last year in the media and in the currency market when Italy asked the European Commission for permission to temporarily exceed the EU-stipulated budget deficit ceiling of 2% of GDP by a small amount - there was an immediate outcry.
Such fiscal laxity must spell inflation and disaster for the euro. The incident provided a textbook example of euro-malaise: whatever happens in the Euroland, most economists will find something negative about it.
The economic data does not support these wild, but commonly held conclusions.
In 1999, the overall public budget deficit in the euro-zone averaged 1.5% of GDP. Italy, by the way, never exceeded the 2% limit. Now compare this number with Japan’s monstrous budget deficit, being expected to run for years at more than 7% of GDP... a full decade after the bottom fell out of the Nikkei.
Who cares?
Who, at least, mentions it occasionally? Fact is, recent news about Europe’s economy actually make highly positive reading.
Real GDP grew 4% at annual rate in the third quarter. For 2000, an overall real growth rate of 3.4% is predicted, after 2.3% last year. It also appears positively remarkable that the European Central Bank has been hiking its interest rates in the face of an average inflation rate of 2% in the euro area, having declared this as the acceptable limit for inflation.
For sure, the situation is incomparably better than in Japan.
Yet, lots of good news about the euro economy are completely submerged in the currency markets by two considerations: first, that economic growth remains weak in comparison to that in the United States; and second, that European firms in general lack the necessary zeal for American-style corporate restructuring, while governments are not doing enough to liberalize their overregulated economies.
If Japanese brokers do peddle the story of successful corporate restructuring in Japan, respected figures in Europe rather tend to confirm the negative image of Europe with critical remarks about lagging measures to reform the economy.
What’s more, central bankers and politicians alike in Europe have systematically undermined the euro most of the time by numerous declarations to the effect that they didn’t care about its slide as long as it did not fuel substantially higher inflation.
To cap this, they incessantly trumpeted their further determination of strict non-intervention in the currency markets. If these people wanted a very weak euro, they couldn’t have done better. No doubt, they did want it. Export-led economic growth has a long tradition in Europe.
Yes, but the creation of the unified European market has dramatically reduced the share of exports in the GDP of the area as a whole. Exports to third world countries account now for about 12% of the euro-zone’s gross domestic product as a whole, compared to formerly more than 30% for the single countries.
In other words, export stimulation has greatly lost its thrust.
The Costs of a Sliding Currency
On the other hand, the pervasive malign effects of the sliding currency, not only on the inflation rates but also on the terms of trade, business profits and interest rates, are ignored or grossly underestimated. There can be no question that these effects of the plunging euro have played a crucial role in mudding the picture of the European economy.
Take the terms of trade effect.
It is widely believed that the falling euro has been crucial in bringing Europe back on its growth path. Indeed, export volume increased in the course of last year by 7%, while import volume declined by 2.6%. On closer look, though, this wonderful effect of the weak euro on foreign trade reveals itself as a great delusion.
What counts for businesses and consumers in the last analysis are the effects of foreign trade on their incomes, resulting from changes in volume and prices.
Despite shrinking volume, import values have soared by 21%, while exports, though booming in volume, increased in value only by 16%.
The decisive point to see is that the positive income effects of the higher export volume have been overwhelmed by the negative income effects of the soaring import prices. Highly visible reciprocal effect of this trade-related income contraction is the shrinking surplus in foreign trade.
But mind you, this is happening not despite the weak currency, but because of it.
To stress the decisive point: the income losses through the currency-related negative terms-of-trade effects substantially outweigh the income gains due to the currency-related increases in export volume. Putting it bluntly, the net effect of the weak euro on Europe’s economy has been income contraction.
American import prices, by the way, increased over the year by only 3%.
As a matter of fact, isn’t it the lesson of history that currency weakness has regularly disappointed the expectations attached to it? It was the Bundesbank that has taught the world over many years the lesson of the pervasive “salutary effects” of a strong currency across the whole economy.
Policymakers in many countries with a bias toward weak currencies took the lesson to the long-term benefit of their economies. Since the euro’s introduction, Europe’s policymakers have done their utmost to prove their complete defiance both of the lessons of history and of this legacy of the Bundesbank.
Plainly, they have done a lot more than just tolerate the currency’s slide. Too many public declarations on their part tended to convey the impression of utter indifference, if not even liking it.
Characteristic of their ambiguity are also the repeated public declarations of their firm determination to abstain under all circumstances from any interventions in the currency markets to support the euro. That’s of course another discrete way to encourage already rampant speculation against the euro.
The Bundesbank has rarely intervened, but it did not hesitate to do so when it saw excessive distortions.
Actually, its interventions, which regularly proved highly efficacious, were greatly feared in the markets. This fear intrinsically curbed the speculation.
Unquestionably, the old Bundesbank would have intervened long ago to stop this absurd decline of the euro. Consider that altogether Europe’s central banks are sitting on a dollar hoard of more than $200 billion.
Solid Fundamentals
Currency strength or weakness, nevertheless, in the longer run is determined not by perception, but by hard economic facts, and in this respect we rank the euro-zone economy well above the American and the Japanese economy.
While there is nothing spectacular about its performance, there is something that we regard as most important to us: The absence of dangerous credit excesses and imbalances. Europe, too, has a stock market bubble, but it has not substantially spilled over into the economy. There is definitely no bubble economy, like in America.
What’s more, there are solid economic fundamentals. A surplus of 44 billion euro in the current account indicates a well-balanced economy. A gross investment ratio of 19% of GDP compares favorably with that in the United States.
The big and highly positive difference to the United States is in the personal savings ratio, accounting in Euroland for 9% of GDP, as against almost zero in the United States. Last but not least, the inflation rate, presently 2.1%, is far below that of the United States.
The virulent risk to Europe’s economy does not lie inside Europe. It lies in the bursting of the American bubble.
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