Tag Archives: Europe

How Corporate Zombies Are Threatening The Eurozone Economy, by Tyler Durden

Part of capitlism’s survival of the fittest is allowing the unfit to die. Precisely what Europe has not done since the last financial crisis. From Tyler Durden at zerohedge.com:

The recovery in Eurozone growth has become part of the synchronised global growth narrative that most investors are relying on to deliver further gains in equities as we head into 2018. However, the “Zombification” of a chunk of the Eurozone’s corporate sector is not only a major unaddressed structural problem, but it’s getting worse, especially in…you guessed it…Italy and Spain. According to the WSJ.

 The Bank for International Settlements, the Basel-based central bank for central banks, defines a zombie as any firm which is at least 10 years old, publicly traded and has interest expenses that exceed the company’s earnings before interest and taxes. Other organizations use different criteria. About 10% of the companies in six eurozone countries, including France, Germany, Italy and Spain are zombies, according to the central bank’s latest data. The percentage is up sharply from 5.5% in 2007. In Italy and Spain, the percentage of zombie companies has tripled since 2007, the Organization for Economic Cooperation and Development estimated in January. Italy’s zombies employed about 10% of all workers and gobbled up nearly 20% of all the capital invested in 2013, the latest year for which figures are available.

The WSJ explains how the ECB’s negative interest rate policy and corporate bond buying are  keeping a chunk of the corporate sector, especially in southern Europe on life support. In some cases, even the life support of low rates and debt restructuring is not preventing further deterioration in their metrics. These are the true “Zombie” companies who will probably never come back from being “undead”, i.e. technically dead but still animate. Belatedly, there is some realisation of the risks.

Economists and central bankers say zombies undercut prices charged by healthier competitors, create artificial barriers to entry and prevent the flushing out of weak companies and bad loans that typically happens after downturns. Now that the European economy is in growth mode, those zombies and their related debt problems could become a drag on the entire continent.

“The zombification of the corporate sector and banks (is) a risk for future living standards,” Klaas Knot, a European Central Bank governor and the head of the Dutch central bank, said in an interview.

In some ways, zombie firms are an unintended side effect of years of easy money from the ECB, which rolled out aggressive stimulus policies, including negative interest rates, to support lending and growth. Those policies have been sharply criticized in some richer eurozone countries for making it easier for banks to keep struggling corporate borrowers alive.

To continue reading: How Corporate Zombies Are Threatening The Eurozone Economy

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The EU Lectures Journalists about PC Reporting, by Bruce Bawer

Another nail in the coffin of European civil liberties. From Bruce Bawer at gatestoneinstitute.org:

  • Nor, we are told, should we associate “terms such as ‘Muslim’ or ‘Islam’… with particular acts,” because to do that is to “stigmatize.” What exactly does this mean? That when a man shouts “Allahu Akbar” after having gunned down, run over with a truck, or blown to bits dozens of innocent pedestrians or concertgoers, we are supposed to ignore that little detail?
  • But that is what this document is all about: advising reporters just how to misrepresent reality in EU-approved fashion.
  • It is interesting to note that while many people fulminate over President Trump’s complaints about “fake news,” they are silent when an instrument of the EU superstate presumes to tell the media exactly what kind of language should and should not be used when reporting on the most important issue of the day.

“Respect Words: Ethical Journalism Against Hate Speech” is a collaborative project that has been undertaken by media organizations in eight European countries – Austria, Germany, Greece, Hungary, Ireland, Italy, Slovenia, and Spain. Supported by the Rights and Citizenship Programme of the European Union, it seeks, according to its website, to help journalists, in this era of growing “Islamophobia,” to “rethink” the way they address “issues related to migratory processes, ethnic and religious minorities.” It sounds benign enough: “rethink.” But do not kid yourself: when these EU-funded activists call for “rethinking,” what they are really doing is endorsing self-censorship.

In September, “Respect Words” issued a 39-page document entitled Reporting on Migration & Minorities: Approach and Guidelines. Media outlets, it instructs, “should not give time or space to extremist views simply for the sake of ‘showing the other side.'” But which views count as “extremist”? The report does not say – not explicitly, anyway. “Sensationalist or overly simplistic reporting on migration,” we read, “can enflame existing societal prejudices” and thus “endanger migrants’ safety.” Again, what counts as “sensationalist” or “overly simplistic”? That is not spelled out, either. Nor, we are told, should we associate “terms such as ‘Muslim’ or ‘Islam’… with particular acts,” because to do that is to “stigmatize.” What exactly does this mean? That when a man shouts “Allahu Akbar” after having gunned down, run over with a truck, or blown to bits dozens of innocent pedestrians or concertgoers, we are supposed to ignore that little detail?

To continue reading: The EU Lectures Journalists about PC Reporting

Europe’s Secession Problems Aren’t Going Away, by Ryan McMaken

Catalonia isn’t the only district in Europe that would like to up and leave the home country. From Ryan McMaken at mises.org:

Earlier this week, The New York Times noted that movements for greater local autonomy appear to be spreading throughout Europe. In some ways, the conflict in Catalonia is just the tip of the iceberg. The Times reports:

Coming on the heels of the Catalan vote, the Lombardy and Veneto referendums are yet another signal of the homegrown conflicts that persist in many of the European Union’s member states. Separatist movements are also simmering in Britain — where voters in Scotland rejected independence in a 2014 referendum but continue to debate the issue — as well as France, Germany, Belgium and Romania.

Like Catalonia — and unlike Scotland — the Lombardy and Veneto regions of Italy are among the wealthiest regions, and send enormous amounts of tax revenue to Rome. Italy’s southern regions, which are significantly poorer than northern Italy, have benefited from Northern wealth ever since Italians were all forced into a single nation-state in the late nineteenth century.

This has never been forgotten by Italians from Veneto, many of whom participated in a referendum in 2014 to declare Independence. Naturally, the Italian government in Rome declared the vote invalid. At the time, however, I interviewed one of the organizers Paolo Bernardini about the referendum. (See “Inside Venice’s Secession Movement.”) At the time, secessionists liek Bernardini appeared to be pursuing immediate and total independence from Rome, while remaining inside the EU:

A tiny majority of Veneto people are in favor both of the EU and of the Euro as a currency. So I envisage a little, rich state, playing a major economic and political role in the EU, a stabilizing role. It will interact naturally with other rich and similar states, Bavaria (still part of Germany), Austria, and the Netherlands. It will be a Finland in the Adriatic.

According to the Times piece, though, supporters of Northern independence have gone back to taking small steps, and realize — probably correctly — that there are numerous steps that must be taken between the status quo and total independence.

The new effort appears to be focused on conducting local plebescites demanding more local autonomy. This doesn’t conflict with the goal of eventual independence, of course, although it probably is an essential first step.

To continue reading: Europe’s Secession Problems Aren’t Going Away

Ray Dalio’s Shorting The Entire EU, by Raúl Ilargi Meijer

The head of the world’s biggest hedge fund complex is bearish on Europe. From Raúl Ilargi Meijer at theautomaticearth.com:

A point BOE Governor Mark Carney made recently may be the biggest cog in the European Union’s wheel (or is it second biggest? Read on). That is, derivatives clearing. It’s one of the few areas where Brussels stands to lose much more than London, but it’s a big one. And Carney puts a giant question mark behind the EU’s preparedness.

Carney Reveals Europe’s Potential Achilles Heel in Brexit Talks

Carney explained why Europe’s financial sector is more at risk than the UK from a “hard” or “no-deal” Brexit. [..] When asked does the European Council “get it” in terms of potential shocks to financial stability, Carney diplomatically commented that “a learning process is underway.” Having sounded alarm bells about clearing in his last Mansion House speech, he noted “These costs of fragmenting clearing, particularly clearing of interest rate swaps, would be born principally by the European real economy and they are considerable.”

Calling into question the continuity of tens of thousands of derivative contracts , he stated that it was “pretty clear they will no longer be valid”, that this “could only be solved by both sides” and has been “underappreciated” by Europe . Carney had a snipe at Europe for its lack of preparation “We are prepared as we should be for the possibility of a hard exit without any transition…there has been much less of that done in the European Union.”

In Carneys view “It’s in the interest of the EU 27 to have a transition agreement. Also, in my judgement given the scale of the issues as they affect the EU 27, that there will ultimately be a transition agreement. There is a very limited amount of time between now and the end of March 2019 to transition large, complex institutions and activities…

If one thinks about the implementation of Basel III, we are alone in the current members of the EU in having extensive experience of managing the transition for individual firms of various derivative and risk activities from one jurisdiction back into the UK. That tends to take 2-4 years. Depending on the agreement, we are talking about a substantial amount of activity.” [..] “I wouldn’t want to use financial stability issues as leverage. I wouldn’t want them to be addressed in a bloodless technocratic way in the interests of all the citizens.”

To continue reading: Ray Dalio’s Shorting The Entire EU

Europe’s Lost Testicles, by Robert Gore

Disarmed and docile Europeans pose no meaningful threat to their governments’ depredations.

All sorts of reasons have been advanced for declining birthrates. SLL spotlights Europe as an advanced case and offers a hypothesis: its testicles have gone missing.

What does it do to a continent when a country 3,000 miles and an ocean away strikes the decisive blows in two of its cataclysmic wars? What does it do to that continent when that distant power assumes control over much of its defense? At a primal level, the very essence of manhood is the ability to defend one’s self and loved ones. Perhaps ceding responsibility for doing so is not emasculation, but it made Europe the little brother who must rely on big brother to fight his battles.

Naturally, big brother calls the tune. During the Cold War, that meant accepting one’s place under the US defense umbrella and toeing the US line on the Soviet Union. Only French President Charles de Gaulle challenged US domination, and that was more show than substance. With a nuclear arsenal and geographic proximity, the Soviet Union posed an existential threat to Europe, even more than it did to the US. If the Soviet Union had invaded during the de Gaulle era, France would have quickly rejoined a US-led alliance.

European politicians had another reason for accepting US domination. They were erecting the world’s most generous welfare states. Money saved on defense spending was spent on benefits. With little protest Europeans also swallowed high and steeply progressive tax rates in return for state-provided largess.

The fall of the Soviet Union in 1991 posed an existential threat to the US military-industrial-intelligence complex. NATO could have been disbanded and responsibility for Europe’s defense handed back to Europe. The US could have significantly cut military spending. It took ten years and 9/11, but the complex overcame the threat and preserved the status quo. It ginned up a story that Islamic extremism posed a danger to the West of the same magnitude as the former Soviet Union.

Islam has historically been riven with sectarian strife, notably the Sunni-Shia schism. Osama bin Laden and al Qaeda were living in caves when the US and United Kingdom invaded Afghanistan in 2001. Not one Islamic nation, and certainly none of the Islamic non-state groups, had any appreciable industrial capacity. Only one Islamic government, Pakistan’s, had nuclear weapons, and its arsenal was tiny compared to the West’s and Israel’s. To rate the Islamic “threat” as anything but minuscule compared to that posed by the Soviet Union was absurd

The only way the West could lose to Islam was if it defeated itself (see “How to Defeat Your Enemies,” SLL). To their credit, the governments of Germany, France, and New Zealand refused to swallow the US’s concocted rationales for the 2003 Iraq invasion—that Saddam Hussein had weapons of mass destruction and was fomenting terrorism—or support it. Globally an estimated 36 million people protested the invasion. The Guinness Book of Records lists a protest by three million in Rome as the largest ever antiwar rally.

We’ll see what happens if the US reneges on the Iran Nuclear Agreement, but to date 2003 remains the highpoint of European opposition to big brother. If they had known the consequences of US incursions into the Middle East and Northern Africa, they would have protested even more vociferously. The US has made a complete hash of it. The war against terror creates more terrorists, and turning the area into a hodgepodge of hell holes has prompted millions to flee, often to Europe.

They find a continent that economically has seen better days. The welfare state guarantees everything but the opportunity to work hard, keep what you earn, and make a better life for yourself. State favored companies use regulation to squelch smaller, less-connected competitors and stop innovative startups before they get started. The European Union is a bureaucratic, centralizing engine run amuck, creating more daunting obstacles to companies and entrepreneurs. There’s the usual corruption that comes with centralized bureaucracies. Monetary authorities are all-in on debt monetization and interest rate suppression policies that discourage honest savings and productive investment but encourage stock, bond, property, and derivatives speculation.

No surprise then that the European economy hasn’t grown much, if it all, the last few decades. Nor that it’s eating America and Asia’s dust in high-tech. It’s not even a surprise that this state of affairs evokes little protest among Europeans. When the government provides cradle-to-grave, you shut up and get with the program. Even if means you live with your parents into you’re thirties or forties, never have a real job or meaningful occupation, never marry or start a family, and nobody can remember one memorable thing you’ve done at your state-provided funeral.

Instead of taking an honest look at why Europeans are not having babies, politicians and other well-credentialed idiots have decreed that immigration is just the trick for declining birth rates and aging populations. They’ve been lucky; big brother America’s interventionist policies have created all sorts of refugees.

Islamic immigration is a focal point for all that ails Europe. Since 2003, there’s been no real opposition to the US’s refugee-creating policies. The refugees have found not just refuge, but state-provided benefits. Europe’s so-called leaders, apparatchiks, and media assure the population that Muslims bear no animus towards Europe. The fable goes that they will readily assimilate and become part of the taxpaying work force, forestalling the impending insolvency of the welfare state.

Only actual facts and a few alternative media outlets challenge this codswallop, for the most part Europeans have bought it. Are they fooled or neutered? The continent responsible for much of Western Civilization probably didn’t get stupid in a generation, which argues for the latter.

The isolated sparks of opposition are met with opprobrium, threats, fines and criminal sentences. Not a month goes by in which a prominent European politician doesn’t call for restrictions on the internet, the one forum that’s not completely cowed (or is it steered?). A few Eastern European nations are the resistance, pariahs. It wouldn’t be the worst thing for them if Angela Merkel-led “proper Europe” cut them off entirely.

One has to wonder if Europe’s preening politicians would be quite so obliviously oppressive (having old ladies beat up to stop them from voting and the like), if Europe’s population would be so docilely delusional, and if its Islamic immigrants would be better behaved if guns were as available as they are in the US. Pseudo-intellectuals smirk that guns are “potent phallic symbols.” True perhaps, but as noted, defending one’s self and loved ones is the first responsibility of the phallically endowed. Guns are a lot more effective than Tasers, knives, baseball bats, or calling the police.

There have been odious incidents of European women being groped, stripped, and sexually assaulted by Islamic criminals in public venues, unchallenged by what passes for European manhood. Just as odious is the pressure brought to bear on those seeking to publicize such incidents. In the US, your “intellectual” credentials aren’t in order unless you hail Europe as a “model.” It’s a model all right, for what happens when governments have no fear of their citizens. Europe’s emasculation is a potent argument for full firearms freedom in the United States.

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The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It, by John Mauldin

European politicians, like their American counterparts, have made many promises they cannot keep. From John Mauldin at mauldineconomics.com:

I’ve written a lot about US public pension funds lately. Many of them are underfunded and will never be able to pay workers the promised benefits—at least without dumping a huge and unwelcome bill on taxpayers.

And since taxpayers are generally voters, it’s not at all clear they will pay that bill.

Readers outside the US might have felt safe reading those stories. There go those Americans again… However, if you live outside the US, your country may be more like ours than you think.

This week the spotlight will be on Europe.

The UK Is Headed to a Retirement Implosion

The UK now has a $4 trillion retirement savings shortfall, which is projected to rise 4% a year and reach $33 trillion by 2050.

This in a country whose total GDP is $3 trillion. That means the shortfall is already bigger than the entire economy, and even if inflation is modest, the situation is going to get worse.

Plus, these figures are based mostly on calculations made before the UK left the European Union. Brexit is a major economic shift that could certainly change the retirement outlook. Whether it would change it for better or worse, we don’t yet know.

A 2015 OECD study found workers in the developed world could expect governmental programs to replace on average 63% of their working-age incomes. Not so bad. But in the UK that figure is only 38%, the lowest in all OECD countries.

This means UK workers must either build larger personal savings or severely tighten their belts when they retire. Working past retirement age is another choice, but it could put younger workers out of the job market.

UK retirees have had a kind of safety valve: the ability to retire in EU countries with lower living costs. Depending how Brexit negotiations go, that option could disappear.

To continue reading: The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It

 

Moment of Unity in a Disintegrating World, by Patrick J. Buchanan

Americans may momentarily close ranks over the Las Vegas shooting, but it won’t last very long. From Patrick J. Buchanan at buchanan.org:

“An act of pure evil,” said President Trump of the atrocity in Las Vegas, invoking our ancient faith: “Scripture teaches us the Lord is close to the brokenhearted and saves those who are crushed in spirit.”

“Our unity cannot be shattered by evil. Our bonds cannot be broken by violence,” Trump went on in his most presidential moment, “and though we feel such great anger at the senseless murder of our fellow citizens, it is love that defines us today and always will. Forever.”

Uplifting words. But are they true?

Or will this massacre be like the Sandy Hook Elementary School slaughter of 20 children in Newtown, Connecticut, or Charleston massacre of black churchgoers by Dylan Roof — uniting us briefly in “sadness, shock and grief” only to divide us again and, more deeply, in our endless war over guns.

“In memory of the fallen, I have directed that our great flag be flown at half-staff,” said the president. As he spoke, the mind went back to yesterday afternoon where the NFL was roiled anew by athletes earning seven-figure salaries “taking a knee” in disrespect of that flag.

Also on Sunday, cable TV was given over to charges that Trump, attending a golf tournament in New Jersey, cared nothing about the suffering of “people of color” in Puerto Rico.

And we just closed out a summer where monuments honoring the explorers and missionaries who discovered the New World and the men who made the America we have been blessed to inherit have, along with those of Confederate soldiers, been desecrated and dragged down.

Only the 1960s, with Vietnam and the great cultural revolution, and the War Between the States from 1861-1865, rival this as a time of national disunity and civil discord.

To understand what is happening to us, we should look to Europe, where the disintegration appears more advanced.

To continue reading: Moment of Unity in a Disintegrating World