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Why the Eurozone Debt Crisis Never Really Went Away

By , Associate Editor, Money Morning • @DavidGZeiler -

How many times have we been told the Eurozone debt crisis is resolved, only to have it turn up again like a bad penny?

Last year's string of good news/ bad news on the Eurozone debt crisis had the markets going up and down like a yo-yo until the routine grew so tiresome that most people stopped paying attention.

But while the crisis faded into the background, it never really went way.

Remedies that were sold as solutions haven't solved a thing.

The celebrated bailouts of countries like Portugal, Ireland, and especially Greece have served mainly to postpone real solutions that would be far more painful.

"The Eurozone politicians in their infinite wisdom have concluded that it is easier to prolong the agony than to take their medicine," said Money Morning Chief Investment strategist Keith Fitz-Gerald.

In fact, the Eurozone debt crisis is getting worse.

Collective debt among the 17 member nations is on the rise, having increased from 85.3% of GDP (gross domestic product) in 2010 to 87.2% last year. That's the highest level in the history of the Eurozone.

Unemployment in the Eurozone rose in March to 10.9%, up from 10.8% in February and 9.9% a year ago. Manufacturing also declined last month, as new orders fell for the 11th month in a row.

And the austerity imposed on the troubled PIIGS (Portugal, Ireland, Italy, Greece and Spain) to bring their budget deficits and debts under control have actually made the situation worse.

"It's done no good at all," Fitz-Gerald said of the Eurozone's efforts to deal with the debt crisis. "It's an absolute travesty."

The steep and sudden cuts in spending are pushing most of Europe back into a recession, which will eventually be felt here at home.



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The Greek Bailout: Why I'm Mostly Bullish about the Eurozone

By , Global Investing Specialist, Money Morning -

Last week's news that Eurozone GDP declined by 0.3% in the fourth quarter of 2011 set all the usual pundits moaning about the inevitable decline of Europe.

Even Andrew Roberts, a wonderful historian with whom I almost always agree, wrote in the Financial Times that "Europe's fire has gone out."

Today, the markets may welcome the Greek bailout deal, but behind the scenes they still dread the fact it won't work.

Meanwhile, hushed whispers are still being muttered about a Greek default as being "worse than Lehman."

On this subject I am a firm contrarian.

If Greece does default and is thrown out of the Eurozone, then I think Europe is actually due for a rebound - not a collapse.

It's only if they decide to bail out Greece again that I would become less optimistic.

If that is the case, they would be devoting hundreds of billions of taxpayer dollars (or euros, as it were) to propping up an inevitable failure. Even then, Greece is relatively small compared to the growth drivers in the Eurozone, which are strong.

The Problem with the Greek Bailout

What the Greek crisis has shown is that European leaders in Germany and Scandinavia have their heads properly screwed on, but they are not yet a majority of EU opinion.

The EU bureaucracy simply gave in far too easily to Greece's first demand for a bailout, then suggested further bailouts for the entire Mediterranean littoral, all of which had over-expanded their governments on the back of low interest rates in the first decade of the euro.

Now reality is returning rapidly to the discussion.


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Four Ways to Sidestep Ireland's Woes and Profit from the EU's Economic Muscle

By , Global Investing Specialist, Money Morning -

The $100 billion-plus bailout of Ireland, which followed the $100 billion-plus bailout of Greece, seems at first to validate the standard U.S. view of Europe - that it's a bunch of backward, socialist countries that will be washed away by the tide of history.

According to this view, one European country after another will succumb to the "Greek disease," until the continent ultimately runs out of bailout money.

The conventional wisdom is that U.S. investors should just avoid the European Union (EU) in its entirety.

But U.S. investors who embrace this view - and ignore the economic muscle that exists in key European market economies - will end up leaving an awful lot of money on the table.

For four investment plays that will let investors profit from the EU, please read on...

How to Profit From Europe's Stealthy Resurgence

By , Global Investing Specialist, Money Morning -

European countries - both inside and outside the Eurozone - are slashing their budget deficits. Sure, some - like Greece and Spain, have to. But others are too. And here's the surprising reality: Europe may gain from its fiscal pain - and its deficit-trimming actions offer the best hope for a lengthy recovery. Find out how, in this free report.

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Europe: The Investor Escape Hatch From the U.S. Recession

By , Global Investing Specialist, Money Morning -

When I speak with the U.S. subscribers to my Permanent Wealth Investor advisory service, there's one bit of wisdom that I repeat time and again: Just because you're living through a recession doesn't mean that your money has to.

If that's a high-falutin way of telling folks to invest globally, so be it. The reality is that there are other places to invest than in the U.S. economy - and many of those "other" spots offer much better returns.

Take Europe...

To discover four investments that will let U.S. investors profit from Europe's continued turnaround, please read on...

Drought Forces Russia to Ban Grain Exports

By , Contributing Writer, Money Morning -

Russia yesterday (Thursday) banned grain exports after unrelenting heat left the country with its worst drought in at least a half-century.

Wheat rose to a 23-month high after Russia, the world's third-largest grower, announced a ban beginning Aug.15 that will last through the end of the year. Corn and rice prices also surged yesterday after Russian Prime Minister Vladimir Putin said a ban on those grains would be "appropriate" in light of skyrocketing prices. 

Domestic grain prices gained 19% last week, faster than at the peak of the global food crisis in 2008.  The ban includes wheat, barley, rye, corn and flour exports, according to the government decree that also set aside nearly $1.2 billion for stricken farmers.

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Why You Should Worry About the Iran Oil Sanctions

By , Global Energy Strategist, Oil & Energy Investor • @KentMoors_OEI -

I cut my teeth doing energy-related deals in the Soviet Union and still spend a lot of time consulting in Russia and the Caspian Sea basin. These days, my work takes me all over the globe. But the part of the world where my career began still holds the key for future oil supplies.

Especially the Caspian.

This land-locked body of water borders five countries, each having major oil-and-gas reserves.

One of those countries is Iran - the focus of the latest problem that's cropped up in the global energy sector.

And that "problem" - Iran oil sanctions - is certain to bring about an increase in the price of crude oil.

Two sanction-spawned catalysts will boost oil prices. To see them, read on...

Ignoring Sovereign Default Damages Credibility of EU's Bank Stress Tests

By , Associate Editor, Money Morning -

The European Union (EU) bank stress tests failed to account for a sovereign default, meaning results show a healthier banking sector than actually exists.

The tests results were released Friday with seven banks failing, but analysts say many more institutions could have failed if the tests simulated a sovereign default. Testing regulators from the Committee of European Banking Supervisors (CEBS) decided against testing securities held in lenders' banking books, where sovereign debt is held and only written down in the case of default.

"The long awaited stress tests do not seem to have been that stressful after all," said Gary Jenkins, an analyst at Evolution Securities Ltd. "The most controversial area surrounds the treatment of the banks' sovereign debt holdings."

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Hungary's Spat with the IMF and EU Could Signal Another Crisis to Come

By , Money Morning -

The biggest financial news story out of the Europe this summer is getting very little play in the U.S. mainstream press. However, it has the potential to torpedo the European Union (EU), and has disastrous implications for borrowing costs worldwide.

Basically, a miniature banking crisis is festering in Hungary. If it isn't contained, it could grow into a genuine crisis that infects the secondary lending markets around the world.

Hungary is supposed to have about $30 billion in domestic liquidity for exchange, the equivalent of about five months of capital in its national account.  But it won't be getting additional funds from the EU machine in Brussels, or the International Monetary Fund (IMF), anytime soon.

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Money Morning Mailbag: Jaded Investors Cast Wary Eye On Scope of Bank Stress Tests

By , Associate Editor, Money Morning -

The results of Europe's bank stress tests are due July 23. But the question remains whether the tests will shed enough light on the banking sector to restore investor confidence.

"All these stress tests mean that we are peeling away layers of the onions, but chances are we are not going to get the full clarity that we as investors deserve," Neil Dwane, chief investment officer for Europe at equities specialist firm RCM, told The New York Times.

Readers who are already on guard from Wall Street manipulation and stalled financial reform have pulled back from volatile markets and are skeptical about the effectiveness of bank stress tests:

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Firms Bail on the EU to Avoid Bank Pay Regulations

By , Associate Editor, Money Morning -

The European Union (EU) today (Wednesday) approved one of the toughest worldwide bank pay regulations to date, hoping to rein in risk-taking and prevent another widespread financial crisis. However, in doing so, it increased the likelihood that financial firms would set up shop in other countries with less stringent regulations.

The European Parliament voted overwhelmingly for the restrictions, in a 625-28 approval at the Strasbourg, France meeting.

"The banks have had two years since the 2008 financial crisis to do this and have failed to act, so now we will do the job for them," Arlene McCarthy, a member of the European Parliament and the sponsor of the bill, said in an e-mailed statement to Bloomberg. "We want banks to focus not on their own pay and perks, but more on lending and support to economic recovery."

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EU Widens Scope of Bank Stress Tests to Include More Banks, Government Debt

By , Contributing Writer, Money Morning -

Under pressure from investors to provide more transparency, European Union (EU) officials are widening the scope of banking stress tests to include more national and regional banks and to assess sovereign-debt risks when calculating how lenders would perform against shocks to the banking system.

The moves come as investors have been increasing pressure on the EU to provide complete transparency while conducting stress tests on the banks.

EU leaders have already agreed to publish stress test results for 26 banks next month - mainly big, cross-border institutions - to address concerns about the Eurozone's exposure to sovereign debt.

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United States Fears Economic Stimulus Measures Will Choke on Europe's Drastic Budget Slashing

By , Associate Editor, Money Morning -

While U.S. President Barack Obama will be gunning for more economic stimulus measures at this weekend's Group of 20 (G20) meeting in Canada, European lawmakers continue drastic efforts to rein in spending.

The coordination of global efforts to promote economic recovery will be the main issue at the weekend's meeting, which was set to spotlight the value of China's currency before Beijing announced Saturday that it would allow the yuan to appreciate. The United States and Europe's differing views on the most effective strategies to maintain global economic growth and slash bloated government budgets are increasing tensions between leaders.

"There is a need to move toward rebalancing," Stewart M. Patrick, a senior fellow at the Council on Foreign Relations in Washington, told CNN. "But every country has different domestic political demands, and that is what drives decision making."

President Obama is worried that drastic austerity measures in Europe will choke global growth and collapse a fragile recovery.

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