Hamish McRae: It's the weak who are being made to suffer

[Blue_Tires]

There has been so much anguish about the future of the eurozone post the Irish rescue – which other countries will need a bailout too? – that we tend not to notice the extent to which some parts of the European economy are doing very well, while other parts are lagging badly. So it is not just that financial conditions are diverging; economic conditions are diverging too.


Insofar as short-term market reactions matter, the past couple of days have been discouraging. Ireland has not re-established its creditworthiness; indeed, many seem to be assuming that it will, along with Greece, eventually default on its debts. Some of us happen to think that will turn out to be wrong, but this is not what the price of its debt suggests.

Worse, not only have long-term rates for Portuguese and Spanish debt risen, suggesting that the markets expect that they will indeed need a rescue; you can see these doubts spreading to Italy. Italy has now to pay two percentage points more on its debt than Germany, the widest gap since the euro was launched in 1999, and nearly one percentage point more than Brazil. Spain has to pay three percentage points more than Germany.

These tensions will continue in the coming weeks and it is hard to see a happy outcome. But the information coming through about the real economy is also troubling. Take yesterday's eurozone unemployment figures. The overall average unemployment rate rose from 10 per cent to 10.1 per cent. That may not sound a lot, but it is another 80,000 people out of work. Moreover, this overall figure conceals big differences within Europe.

Germany's rate is only 6.7 per cent, but Italy's is 8.6 per cent (up sharply on the month), and France is at 9.8 per cent. These are troubling enough (the UK figure is 7.7 per cent) but Spain is at 20.7 per cent, Ireland 14.1 per cent and Portugal 11.0 per cent.

Much the same picture comes if you look at economic growth. To take some of Barclays' forecasts, Germany is expected to grow by 3.2 per cent this year, but Italy looks like growing by only 0.8 per cent and Spain's economy will shrink by 0.2 per cent. Greece has the worst of it all, shrinking by 3.8 per cent this year and another 2.3 per cent next. At least Ireland is expected to grow by 2 per cent next year, not great, but any growth is better than none.

If you think about it, this is harsh. The weakest countries are being punished the most. Not only do their governments have to pay the highest interest rates; their companies do, too. It is hard to justify in any way the speculative boom that led to this current distress but the reality is that the over-borrowed economies face years of cold turkey.

http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mcrae-its-the-weak-who-are-being-made-to-suffer-2147831.html

[midnight]

1. It has worked so well for the elite, that they will continue

with this tool of squeezing the weak to enhance the wealth of the elite...

[xchrom]

2. europeans are having their own struggle with neo-liberalism.

reagan and thatcher have succeeded beyond anyone's wildest imaginations.

while i get frothed at the mouth over 'stealth creationists' on school boards -- 'pragmatic' liberals cut the throats of the poor, working class, middle class, etc -- and am surprised when i turn around and find that is the case.

it's the same in europe -- without the 'stealth creationists'.