Friday, November 9, 2012

Europe’s problems are not just economic

by James Mackintosh

Financial Times

November 8, 2012

With hindsight, linking the words “Greece”, “myth” and “euro” was rather foolish, as Greek membership of the single currency hangs by a thread. At least new banknotes announced by the European Central Bank feature Europa, the Phoenician princess abducted by a bull. The ECB could have picked Kallisto, another young lady kidnapped by Zeus: she was turned into a bear.

In real life, the bears have been dominating for the past month. The euro buys $1.27, down from $1.31 a few weeks ago, and the lowest since early September. Almost all of the gain made as the Federal Reserve’s QE3 bond purchases weakened the dollar has evaporated.

Part of the blame rests on disappointing economic figures. While US data have beaten forecasts – by the most since February, on a Citigroup measure – in Europe the data have become surprisingly bad again and are getting worse.

The European Commission underlined the weakness on Wednesday when it cut its forecast for eurozone growth next year from 1 to 0.1 per cent – even worse than the 0.25 per cent predicted by private sector economists. Neither has a record to be proud of, but it is hard to find anything positive to say about Europe’s outlook.


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