Posted on 04/26/2008 2:13:55 AM PDT by dennisw
The euro has suffered its sharpest drop in four years as a blizzard of weak data from Germany, Belgium, France, and Spain spark fears that economic contagion may be spreading from the Anglo-Saxon world to Europe.
Spain's business federation warned that Spanish unemployment will rise by 500,000 by the summer unless the government takes "valiant measures" to offset the housing and construction crash. "For every dwelling not built, two workers will lose their jobs," said the group's president, Gerardo Diaz Ferran.
The country's credit group ASNEF said the volume of personal loans had dropped 30pc in the first quarter, the worst performance since the country's financial crisis in the early 1990s.
Troubling data in Spain has been building for months, but investors have tended to focus on Germany as a proxy for the whole eurozone. A shock drop in Germany's IFO business confidence index yesterday caused an abrupt change of mood in the currency markets.
The euro plunged to $1.5646 against the dollar, down from its all-time peak of $1.6018 on Tuesday. It is still 27pc above its level two years ago.
The German data follows a slide in the Belgian index, which captures crucial port activity in Antwerp. The headline confidence figure fell to -7.4 in April from plus 1.2 in March, with a dramatic slump in the export order books to -14. This is flashing near-recession warnings.
David Owen, an economist at Dresdner Kleinwort, said Europe would soon be engulfed by the twin effects of a "collapse in export volumes" and a slow motion credit squeeze. "The wheels are coming off the eurozone economy," he said.
BNP Paribas warned clients yesterday that the "decoupling story" was no longer credible. "We see Europe in the early stage of a credit crunch, and if we are right credit supply will shut down," it said. Key governors of the European Central Bank began to back away from their hawkish stance of recent weeks, clearly disturbed by the market perception that they are mulling a rate rise to choke off price rises. Inflation has reached a post-EMU high of 3.6pc on surging oil and food costs.
Jean-Claude Trichet, ECB president, went out of his way yesterday to brief journalists that "sharp" currency moves had "possible implications for financial and economic stability", a coded threat of co-ordinated intervention by world central banks.
The comments caused a second scramble for dollars in mid-day trading as speculators rushed to cover "short" positions against the greenback.
The ECB is under heavy pressure to soften its rhetoric from both France's president Nicolas Sarkozy and Italy's premier Silvio Berlusconi, though the pair have so far stopped short of invoking treaty powers to force a change in the exchange rate - at least in public.
The EU-wide lobby BusinessEurope said: "The strong euro is alarming and in particular the speed of its appreciation since the start of 2008 is a key concern for European companies."
France is succumbing to the slowdown. Insee business climate index fell harder than expected in April to 106, from 108 in March.
Eric Chaney, Europe strategist at Morgan Stanley, said the April survey by French corporate treasurers was "alarming", pointing to distress in the financial system. "Let's call a spade a spade, some sort of credit crunch is unfolding in the funding of French companies," he said.
The IMF has cut its eurozone growth forecast three times since October and is predicting 1.4pc growth for the bloc this year and 1.2pc next year. It warned in its regional report this week that Europe will suffer 40pc of the entire $940bn global losses stemming from the credit crunch, with losses of $123bn faced by European banks alone.
“For every dwelling not built, two workers will lose their jobs,”
I kind of laugh at statements like this — it’s as if this person is suggesting that it is the government’s job to ensure that these workers will have additional houses to build (regardless if there is a demand for these houses).
One of the biggest “fatal flaws” with left-wing idiots like these is their complete inability to understand the concept of supply and demand. They have all been indoctrinated to reject this concept.
Last month I read Spain is planning a huge gubbermint infrastructure program to stimulate the economy and employ Spanish workers. Housing crashed in Spain. Too many vacation condos for Brits and Germans
HAHA!!!! Europe’s chickens have come home to roost!!!
As if that “contagion” wasn't right there all along... The Anglo-Saxon world didn't make them build those houses that are sitting empty now. It is just the blame game, it must be somebody else's fault...
The housing gambler cancer in the UK spread out throughout Europe and beyond these past few years. Brits were buying up “off-plan” properties sight unseen in far-flung no-income places like Bulgaria and the Ukraine. They were using Polish labor to fix up “buy-to-let” places in London for a quick flip. They were buying second and third houses throughout Europe.
And they were obsessed with property speculation.
You thought the US had a “housing porn” problem? Take a look at this list of real estate porn TV shows that infected Britain the past few years.
A Place By the Sea
A Place in Greece
A Place in the Sun
A Place in the Sun: Home or Away
Build a New Life in the Country
Build, Buy or Restore
Changing Rooms
Did They Pay Off The Mortgage In 2 Years?
DIY SOS
Escape to the Country
Extreme Makeover
Grand Designs
Grand Designs Abroad
Home
Home From Home
Homes Under the Hammer
Honey I Ruined the House
Hot Property
House Auction
House Busters
House Chain: Under Offer
House Doctor
House Hunters in the Sun
House Invaders
House Price Challenge
House Race
Houses Behaving Badly
How Not to Decorate
How To Be a Property Developer
How to Rescue a House
I Want That House
I Want That House Revisited
Living in the Sun
Living etc
Location Location
Making Space
Moving Day
My Place in the Sun
Nice House… Shame About the Garden
Other People’s Houses
Our Home
Pay Off Your Mortgage in 2 Years
Property Dreams
Property Ladder
Put Your Money Where Your House Is
Relocation, Relocation
Restored to Glory
Room For Improvement
Selling Houses
Staying Put
Streets Ahead
Super Agents
Superhomes
Through the Keyhole
To Buy or Not to Buy
Trading Up
Uncharted Territory
Up Your Street
Would You Buy a House with a Stranger?
They will blame it on the Bush admin.
After spending a week in London getting rained on, I was looking at the “House in the Sun” ads, myself!
Wow! Thanks!
What are these folks going to say when it really goes south?
That's when they will play the blame (Bush, USA, Karl Rove, JimRob, capitalism, bankers, Wall Street, you, me, white people, rich people, Republicans, Conservatives, Southerners, racists, free traders, globalists, CEOs, Rush, Sean, etc) game.
The Euro is pumped full of socialist hot air right now...be patient, and the dollar will prevail in the long term.
Keep diving please. My wife and I are off to Paris for a vacation in July.
That's a slip of only 3.72 U.S. cents, equivalent to a 2.3% drop. Big deal!
It is still 27pc above its level two years ago.
The euro is overvalued and the U.S. dollar is undervalued. But I wouldn't dare say how long it will be before we finally return to a balanced exchange rate (which would be near parity.)
A friend of mine in manufacturing tells me there is now a shortage of containers for shipping U.S. products abroad. Not long ago, we were sending them back empty. Interesting if true.
We went to Ireland (Euro) and the UK (not Euro) last spring."Expensive" doesn't even begin to describe it.
Yeah, I wanted to stay in the states this summer but she's a Francophile so Paris it is. It will be fun until the credit card bill arrives. Oh, well.
2.3% drop over three days...That is over 230% on annual terms. That is a very sharp drop in terms of money. This is exactly what needs to happen to help Europe, it is the overvalued Euro which has been the trouble with growth (not to mention the socialism itself). Our recession in 2001 was also the result (I believe) of too high a “value” on the dollar. Our “under value” dollar has been a blessing for exports, tourism, and dealing with rising oil prices. As the Euro comes down in “value” and the Dollar up the oil prices will ease somewhat, as will most commodoties. This will help to right the world economy. We don’t need the government to do anything, the free markets do it pretty much on their own. That is the beauty and truth of freedom, it is what naturally exists and is supposed to exist.
That will be a "dive" too, because people want a crisis no matter what the numbers are.
You're right that it's a bubble and "we ain't seen nothin' yet", especially because the real picture is as the article said, we're talking about the euro at "$1.5646 against the dollar, down from its all-time peak of $1.6018". Translation: the euro's up, a lot.
What really baffles me here is all the idiots that say that this exchange value is somehow "bad", and that everything was better --back during 9/11?
I thought it was just the opposite. I was under the impression they believed that when the unwashed masses demanded, the government would supply ;-)
Oh, I get it, I confused demand and supply with supply and demand. My bad!
LLS
I agree that the free market will correct itself, but if the politicians in Washington had the wit and benevolence to eliminate the capital gains, inheritance, and corporate taxes and start extracting and refining domestic oil, the U.S. economy would leave Europe’s and Asia’s behind in the dust.
In absolute terms the 4 cent drop may not be much, but to people playing the currency markets it’s undoubtedly a huge move - some folks made a bundle and some folks lost their shirts. To the rest of us, the sun still came up this morning and not much has changed.
The question is if the euro starts to plummet vs. dollar, where will the Chinese and Arabs put their money? Do they buy more US treasuries? Do they buy hard assets (companies, real estate) in the US? I am not at all sure with the way things are looking for the US economy they will do that. We are at the beginning of a global contagion with paper currency. Those with excess cash may rather invest in hard assets of some sort, but the key is what?
“Paper money will…ruin commerce, oppress the honest and open the door to every species of fraud and injustice.”
George Washington
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
Ludwig Von Mises
When the Euro gets below $1.30, it might be called a dive.
--and the fact that this hasn't happened in over two centuries is proof of how very farsighted Washington was.
"The wheels are coming off the eurozone economy," he said.THATS the funniest thing i've read today... 8^)
sounds like a tagline.
“The euro has suffered its sharpest drop in four years “
Keep it going.
I want to travel Europe on a strong dollar..
Ping
When the US stops buying and flying, the world goes down. The multinational traders on Wall St., who have been selling the story that there is a “decoupling” of the world economy from ours, are wrong again. Example: The global food shortage resulted from the US changing its grain surplus into fuel, thanks to Bill Clinton, Algore and the Dems in Congress in the ‘90s.. When we screw up, the world suffers.
Remember, they do things differently than we do and attempt to get ahead of the curve.
They never succeed of course, but that's what they try to do.
In France they sought to spread unemployment with a 36 hour week that prohibited overtime, even for lawyers!
Didn't work.
But, our best bet is to let the Europeans play. Their alternative "plan" is almost always a bit of looting on a major scale ~ you know, like Spain invades France, France invades, Belgium, Sweden nukes Prague ~ on and on.
“Anglo-Saxon world to Europe”
England is killing Europe??
Those were my first thoughts, too. I'll be in Italy and Greece the end of August and was just thinking about buying Euros for the trip. Think I'll wait a while.
Actually recently Soros made comments that seemed he has switched from long euro to long the dollar when the euro was about 1.58.
Thanks for the ping.
Take her to Quebec!
All the arrogance of real Frenchmen without all that frou-frou- culture BS!
Even before the Euro was implemented there were many who questioned the possibility of maintaining a unified monetary policy with such vastly divergent economies. What they seem to have forgotten is that the US has over 200 years of unifying of the economies of the states to make attempting it even possible, and we don’t always get it right.
Even when all of Europe has a slowdown it’s not likely that the same actions will work for all the nations, or that the recoveries will happen at the same rate.
Since this is California, it probably understates trade changes going to Europe, but it does show a definite change in the flow of goods.
Thanks much....
Yes, 300-400 pips isn’t all that much of a plunge. It happened slowly all during the week. Shorting the Euro against the dollar was a profitable position. The Sterling also dropped about 300 pips, but rallied back about 200 on Friday.
This article is a little overstated, at least as far as the actual exchange rates are concerned. The comments by the socialist pinheads are a bit more concerning though.
I'm starting to watch the dollar index funds closely, along with the exchange rate. A couple of currency investors I know say we may see the Dollar swing 20-25% higher against the Euro in the next 6 to 8 months for a variety of reasons......
We have been leaving other economies in the dust for decades now. But, I totally agree with the tax cuts and becoming energy independent. One good thing about high oil prices is we will innovate and also come up with new viable energy alternatives as well as develope existing non-oil based energy (nuclear...). I have hope that someday technology and good ole American ingenuity will allow each household to be energy independent...it will happen if the government stays the heck out of the way.
It's possible that high gas prices might jar the public sufficiently into common sense to overrule the envirowhackos and develop U.S. oil reserves.
I intend to vote for McCain over any Democrat nominee. However, when he talks about not drilling in Alaska because of the environnnnmennnnnt, I feel like his brain's not getting enough oxygen.
Let me hasten to say that Hillary or Obama would be FAR WORSE in every possible way and "VOTE REPUBLICAN"!
Decoupling from the US economy... Ha ha ha ha ha ha ha ha ha ha ha ha ha!!! What a scream. How in the name of god is it even possible that otherwise intelligent people can delude themselves so massively and completely to believe such idiocy such as that the NASDAQ tech bubble was for real, that housing never goes down and that the world’s international economies could POSSIBLY be unaffected by a recession in America. This is too easy. It is plain common sense, yet some people just bury their head in the sand and go on believing what they want to believe until it cracks them on the skull. Stupidity should never go un-rewareded.
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