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Europe. Is. Doomed.

by DoDo Sat Apr 19th, 2008 at 10:37:51 AM EST

(Title stolen from ThatBritGuy.)

Many on ET have noticed how the Anglo-Saxon business media consistently reports economic news from continental Europe with the most negative spin, picking out the worst, and gives positive spin to news from home. (Nay -- all the business media do it, and so do analysts and economiists in the real economy.)

Here is yet another egregious example - I give you the latest Eurozone external trade numbers as reported by Bloomberg, and then do counter-spin:

European January Exports to U.S. Flat After 2007 Drop

By Fergal O'Brien

Euro-area shipments to the U.S., which dropped in 2007 for the first time in four years, were flat at 15.4 billion euros ($24.6 billion) in the first month of 2008, the European Union's statistics office in Luxembourg said today. Exports to the U.K. rose 5 percent, while sales to Russia and China jumped 25 percent.

So exports to one main trade partner flat, that to three others with massive jumps, what do you pick as headline?... But wait, it gets better.


The euro reached a record near $1.60 against the dollar yesterday after European inflation data lessened the prospect of a European Central Bank interest-rate cut. That is adding to pressure on manufacturers trying to ship products into a U.S. economy teetering on the brink of a recession. France's Airbus this week said the euro's level is ``becoming unbearable.''

``A lot of the growth in the euro zone has been very much dominated by Germany and in particular trade,'' said Mitul Kotecha, head of foreign-exchange research at Calyon in London. ``Going forward, it's going to be quite risky. The reality is we're going to see some deterioration in trade and the strong euro is going to start to play a more negative part.''

So not only are exports to the USA the only ones that count, but maintaining exports there despite steadily less advantageous exchange rates = deterioration?... (And they quote an airline as evidence, airlines having trouble with oil prices too.)

Now, if you don't ask analysts in London, but check the actual Eurostat press release [pdf!], the news is - something completely different:

The first estimate for the euro area¹ (EA15) trade balance with the rest of the world in February 2008 gave a 0.8 bn euro surplus, compared with -1.6 bn in February 2007.

In other words, in February, the Eurozone's economy improved to have a trade surplus in place of a deficit over one year -- a period over which the Euro appreciated relative to the dollar by about 14%. What's more:

The January 2008² balance was -11.0 bn, compared with -7.3 bn in January 2007. In February 2008 compared with January 2008, seasonally adjusted exports rose by 2.0% while imports fell by 0.4%.

So after seasonal adjustion, compared with last month, trade balance improved again, even in relative terms.

The positive annual and seasonally adjusted month-on-month changes are reciprocated by the E-27, too:

The first estimate for the February 2008 extra-EU27¹ trade balance was a deficit of 15.3 bn euro, compared with -17.5 bn in February 2007. In January 20082, the balance was -31.2 bn, compared with -26.0 bn in January 2007. In February 2008 compared with January 2008, seasonally adjusted exports rose by 3.3% while imports fell by 0.7%.

Note that unlike in the Eurozone, the improvement here was merely a reduction of the trade deficit. Wonder why?

Concerning the total trade of Member States, the largest surplus was observed in Germany (+17.1 bn euro in January 2008), followed by the Netherlands (+3.2 bn). The United Kingdom (-12.1 bn) registered the largest deficit, followed by Spain (-9.1 bn), France (-5.5 bn), Italy (-4.1 bn) and Greece (-2.9 bn).

Why don't analysts in London talk about that? Sitting in a country less affected by an appreciating currency, with the Euro also making records vs. the Pound?

In the tables of the press release, noteworthy:

  • In January 2008 vs. January 2007, 25% growth of Eurozone exports to China are contrasted by import growth of only 9% (though in absolute numbers, that's still a minor increase of a massive trade deficit);

  • If you check trend in seasonally adjusted numbers, there was a low point in December, with two months of improvements after, for both the Eurozone and the EU-27;

  • France's extra-EU-27 trade deficit turned a surplus (those with big deficits there are the Netherlands, the UK, Spain and Belgium - guess the only one with no improvement from January to February!). Italy, too, has its big trade deficits intra-EU.

Display:
I guess a reasonable critical observation on Eurozone trade number developments would be that the import/export effect of exchange rate changes follows with a lag.

However, the (seasonally adjusted) improvements of January and February upon December would then correspond to a stagnation of the Euro/Dollar exchange rate (which lasted from the last third of November until the last third of February). Meaning, the Eurozone export industry increases its competitivity over time?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Apr 19th, 2008 at 10:43:36 AM EST
Nice deconstruction.

The figures also give a bit of creedence to the idea that the EU may well be somewhat decoupled from the Anglo meltdown.

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Sat Apr 19th, 2008 at 11:04:33 AM EST
[ Parent ]
Changed color of Eurostat quotes, added sentence on Italy.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Sat Apr 19th, 2008 at 11:12:26 AM EST
[ Parent ]
You know DOdo..

It really hurts...

but it hurts, not the fact that we can see this crap day in and day out... but it hurts the fact that diaries like this one can not be published in mainstream media...

It hurts that we can not get this out.... it hurts.. it really hurts...

It so clear once is presented like this...that it hurts.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Sat Apr 19th, 2008 at 01:41:08 PM EST
[ Parent ]
It seems that you are thinking about the J curve.

Rutherfordian ------------------------------ RDRutherford
by Ronald Rutherford (rdrradio1 -at- msn -dot- com) on Sat Apr 19th, 2008 at 05:29:28 PM EST
[ Parent ]
Unlikely. There are a number of implicit and explicit assumptions made in the wikipedia entry on the J-curve that are not necessarily valid. Starting with the assumption that the relationship is a function.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Apr 20th, 2008 at 02:35:17 AM EST
[ Parent ]
Hello again, Jake.
I am surprised anyone has such an interest in my posts.

But according to the facts this model does a good job explaining the phenomenon being described. Maybe you can explain your points in more detail before I can understand your points.

Rutherfordian ------------------------------ RDRutherford

by Ronald Rutherford (rdrradio1 -at- msn -dot- com) on Sun Apr 20th, 2008 at 03:06:04 AM EST
[ Parent ]
Meh. My bad. I was reading the wiki entry diagonally and accidentally mistook the second headline as belonging to the same definition. And the second headline is indeed somewhat spurious.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Apr 20th, 2008 at 06:42:32 AM EST
[ Parent ]
You should underline even further the relation of the PRC to this issue, and then connect the dots. You might even do some comparative exchange rate charts USD:CNY and EUR:CNY to underline it further, by making reference to the fact policymakers in the PRC are re-orienting, away from the US and towards the EU, clearly seen in those charts. That reorientation, by the way, clearly is a positive development for the EU.

Now which country would absolutely love a rift between the PRC and the EU?

Now go re-visit all that Tibet nonesense.

Making a little more sense now as to who's the tool of whom?

Tusk and Klaus should've been giving strong clues.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sat Apr 19th, 2008 at 11:52:03 AM EST
It's actually quite clear that it is the other way round. If you look at the way European leaders have been the most outspoken, at how the European demos have been the most violent, you can just connect the dots. In its quest for world hegemony the EU is seeking to destroy the US by damaging its relationship with China. The cost of the same to the EU is acceptable because the EU is in much better economic shape in general and is also much less structurally vulnerable to a breakdown in relations (no huge financing needed). You can also see it in the way the Poles have been behaving, a result of the recent election of Brussels stooges who support this policy in spite of the valiant efforts of the euroskeptic opposition who see no reason why Poland should take any position on the Tibet issue.

Or you can look at how those Eurotribbers who are both strong Europhiles and self-confessed supporters of ending US hegemonic status have been dealing with the issue.  Connect the dots...

by MarekNYC on Sat Apr 19th, 2008 at 12:39:44 PM EST
[ Parent ]
Seriously, I'm not quite sure I get your point. Even if the brother monarchs of the earth are taking steps to curb US power, the only question would be, why so meek and so belated?

The main point of the diary was to mock the perverse propaganda that seeks to turn clear evidence of deteriorating terms of trade for the USA relative to EU as proof that the Diseased Anglo NeoCons were right all along.

by PIGL (stevec@boreal.gmail@com) on Sat Apr 19th, 2008 at 01:27:34 PM EST
[ Parent ]
Depending on how severe the global impact of the likely nasty financial meltdown in US debt markets in the near term, for me the question is how best to manage through the resulting turbulence, with the Eurozone attempting to stay clear as best as possible the ill-effects of severe recession in the UK and the US.

It isn't just about taking the US down a peg, but also, protecting workers in the EU and managing through what may very well be trying economic times.

Thus the importance of the relationship with the PRC, with Russia, and with Latin America.

The most vociferous opponents of the PRC have been coming from the European right-wing., with the exception of France, whose center-left has chosen to use the issue as a way to embarass a right-wing government.

Finally, we don't know how violent protests in the US would have been because the running of the torch in San Francisco, unlike that in Paris, was actually properly managed.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sat Apr 19th, 2008 at 05:40:26 PM EST
[ Parent ]
What you need to do is write something coherent, sourced, substantified, about this, instead of this non-stop innuendo. You never know, if you produce some solid arguments and evidence, you might persuade people you're right.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Apr 19th, 2008 at 01:37:46 PM EST
[ Parent ]
Can we please stop threadjacking (and get out of tin-foil-hat-territory at the same time)? There is something like a bazillion threads on China and Tibet and the Olympics already.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Apr 19th, 2008 at 01:59:36 PM EST
[ Parent ]
Suggest you address this to redstar. I was asking him to write something else, elsewhere, on the subject he brought in.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 20th, 2008 at 03:08:40 AM EST
[ Parent ]
Don't worry. I got the message. Loud and clear.

I shall not be bothering JakeS or anyone else for that matter with my objections or other opinions on this or any other subject.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sun Apr 20th, 2008 at 04:17:15 AM EST
[ Parent ]
Why the drama? Why don't you write a diary setting out and backing up your opinions on US - EU - PRC?

There is no other message loud and clear.

by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 20th, 2008 at 05:20:43 AM EST
[ Parent ]
It's addressed to both comments. The fact that it is appended to the last comment in the family is somewhat incidental.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Apr 20th, 2008 at 06:18:07 AM EST
[ Parent ]
redstar, that's an extremely forced and inconsistent assemblage of evidence and speculation into a hypothesis to shift the debate to something that seems to become a monomania.

If monetary policy expresses attachment vs. rift, the PRC is rather closely aligned with the US, even with some re-alignment. In fact that re-alignment is seen as beneficial by part of the US elite (the neocon part, which believes a yuan appreciating relative to the dollar will be bad for Chinese and good for US manufacturing; as opposed to the part of the US elite running financial capitalism and owning factories in the PRC), and was demanded on international fora more forcefully by the Dubya government than the EU.

If we examine exchange rates, simultaneously with the stagnating Euro/yuan exchange rate, we indeed see a slow declining Euro/Yuan trend until the middle of February - but then again skyrocketing. So ths is useful to explain the development of Eurozone exports and imports to China, but not as evidence of some EU orientation. Meanwhile the appreciation relative to the dollar has a fairly steady trend, which does say something, but not what you did.

Connecting this to Tibet is - nonsense. Connecting this to the Dalai Lama and Western Free Tibet protesters is on the verge of a B-movie conspiracy theory.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Apr 19th, 2008 at 02:07:35 PM EST
[ Parent ]
Here is the big picture (the renminbi peg to the US dollar ended in July 2005):



*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Sat Apr 19th, 2008 at 02:37:13 PM EST
[ Parent ]
My big picture sees it a bit differently. First of all, EU-27 trade is still at a deficit, a pretty big one, and EA-15 trade is in surplus largely because of trade with non EA-15 members of the union. Strip the non-EA15 EU member states from the figures and you have a trade deficit in the Eurozone. And notably, the UK has a big deficit with the EA-15 zone, even bigger than that of the much larger US.

Now, just looking at EA-15 trade stats, it appears that despite a strenghtening value of the EUR relative to CNY, the trade deficit with the PRC continues to be stable, as if managed and indeed, it would appear that whereas early on in the float of CNY, it was clear that the PBOC was managing viz USD, slowly it becomes apparent that the PBOC is managing viz other trading partners as well, and likely accumulating EUR-denominated assets in the process.

Meanwhile, and this is pure speculation which may or may not be borne out by statistics to be issued later, export growth to the PRC from he EA-15 is indeed extremely robust, my guess due to large purchases of capital goods (noting the German numbers).

So, we can expect stagnation in the trade situation with a deteriorating US whose currency continues to price out Eurozone exports, with Russia, China and other non EA15 eastern european countries being the source of future growth. But it is hard to sustain export growth when one is busy haranguing ones trading partners and goading them into boycotting your goods.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Sat Apr 19th, 2008 at 05:33:22 PM EST
[ Parent ]
Now, just looking at EA-15 trade stats, it appears that despite a strenghtening value of the EUR relative to CNY, the trade deficit with the PRC continues to be stable, as if managed

Is your working hypothesis that the PRC government 'compensates' for the exchange rate deterioration by exerting control over the volume of public and private exports/imports? (Also, when staying "stable", what timeframe do you consider?)

I think such a hypothesis would need some further evidence to be seriously considered. Meanwhile, to spell out the big picture in the two diagrams:
(1) all the short-term variation in EUR/CNY is explained by volatility in the EUR/USD rate, while on a longer term, the slow and steady decline of the USD/CNY rate does indicate management (which does involve diversifying assets);
(2) the dollar depreciates relative to the Euro faster than relative to the renminbi, thus the Chinese exchange rate policy is steadily beneficial to US manufacturers, but at the same time still steadily worsening for Eurozone manufacturers.

But it is hard to sustain export growth when one is busy haranguing ones trading partners and goading them into boycotting your goods.

Boycotts could cut more into imports than exports in absolute numbers, so the trade deficit with the PRC would decline.

I submit the boycott calls and the nationalist protests against Western pro-Tibet protests (some participants of which are nasty like all nationalists) are topical to the issue of Eurozone external trade, even if not to the presentation of January and February statistics.

Myself, I don't think much of PRC products boycotts over Tibet, but I see stronger reasons. I am for long the view that neoliberal free-trade policy helps a race to the bottom, that in wages and labour rights and environmental/consumer protection regulations; and for that reason, I also or long think that the EU should make trade with the PRC conditional on improvements in environmental, work safety standards and labour rights. (But fat chance our Democracy warriors will recognise trade unions as a vehicle of democracy.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Apr 21st, 2008 at 01:51:35 AM EST
[ Parent ]
the Chinese exchange rate policy is steadily beneficial to US manufacturers, but at the same time still steadily worsening for Eurozone manufacturers.

I note this doesn't just mean the bilateral trade, but also Eurozone-Chinese competition on the market of third countries, and outsourcing decisions taken by multinationals.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Apr 21st, 2008 at 08:08:06 AM EST
[ Parent ]
(Also, when staying "stable", what timeframe do you consider?)

As an illustration to the question, I prepared this diagram of seasonally adjusted Eurozone trade balance numbers:



*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Apr 21st, 2008 at 10:24:25 AM EST
[ Parent ]
I beg to differ, noting simply that one of the big news items in the story, highlighted in fact, was export growth to the PRC, which I simply saw as somewhat ironical given some of the deconstructions of other aspects of that relationship on these pages in the recent past.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Sat Apr 19th, 2008 at 05:35:33 PM EST
[ Parent ]
"reports economic news from continental Europe with the most negative spin, picking out the worst, and gives positive spin to news from home."

I think it is not only economic news, but most news at all. The difference is simply that modesty is seen in parts of Europe as virtue, while in the US as a flaw. I don't see any more conspiracy behind it than simple cultural issues.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 21st, 2008 at 09:21:19 AM EST
The difference is simply that modesty is seen in parts of Europe as virtue, while in the US as a flaw.

There is something to that, at least as something neoliberalism could capitalise on initially when seducing our economic elites.

However, such a simple difference doesn't explain that at the same time, the British and US business media managed to praise each others' economies, too, while our own managed to also praise those two and speak of impending doom in various other continental European countries (well, this last one maybe not that consistently in the last few years).

You don't need to think of a conspiracy to explain this. All it takes is for people to think in the same narrow framework, and notice all evidence that seems to fit it and be blind to everything else, not to mention noticing other patterns. In other words, Zeitgeist is enough.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Apr 21st, 2008 at 01:24:16 PM EST
[ Parent ]
I wanted to add that it was just in the German media I first got a strong sense of this, about a decade ago. Lots of articles bemoaning an economy that is uncompetitive and a basket case, as if it were collapsing (like it did in reality in the ex East Bloc), at the same time I saw a lot of German exports and dominance of German manufacturers in many markets, including new products, and statistics that weren't that bad at all. There wasn't merely a modesty about successes, they were at best not talked about on the economy pages, at worst badmouthed (say the emerging renewables manufacturers and their job creation).

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Mon Apr 21st, 2008 at 01:30:41 PM EST
[ Parent ]
In parts of east Germany there was 20%+ unemployment while the US reported less than 5%, sluggish GDP growth (from 1998 - 2006 in Germany about 1.4% in the US about 2.8%). Increasing public debt, while in the US Greenspan asked Clinton for lowering taxes, because otherwise the state could run out of debt; the stronger visibility in every day life of the new American products compared with the more behind the stages German products; the demonstration of military capability of America (Kosovo...); a housing boom which made Americans rich on paper - all that gives for the typical journalist (the best economists, mathematicians, ... usually do not become journalists) the impression that Europe and especially Germany were lagging the US quite dramatic.

People think in these frameworks because others are more complicated. How is the GDP calculated? Is GDP a better measurement of wealth than GDP/capita? What are these public deficit numbers and which future liabilities come with payroll tax income of the US state? How is unemployment measured? Can a country become rich by selling each other more and more expensive houses? How much is the state quote and what services is the state paying with the money it gets. Which quality does these services have and who benefits most from them?
I think you expect too much from the everyday press, if you ask for taking such questions into account.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 21st, 2008 at 03:21:04 PM EST
[ Parent ]
Think GDP per head rather than GDP.
Think poverty rate rather than unemployment rate.
Think export numbers.
Think net house equity levels.

And imagine the US paying for a crash programme to bring Mexico to the same standard of living and infrastructure as the USA in a few years.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Apr 21st, 2008 at 04:44:20 PM EST
[ Parent ]
I think you expect too much from the everyday press, if you ask for taking such questions into account.

Would it be asking too much for them to acknowledge their cluelessness?
by Colman (colman at eurotrib.com) on Mon Apr 21st, 2008 at 04:54:21 PM EST
[ Parent ]
I guess they will tell you that they have to simplify for their readers ;-)


Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers
by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 21st, 2008 at 07:12:30 PM EST
[ Parent ]
I think you expect too much from the everyday press, if you ask for taking such questions into account.

Then the press is (has become?) simply another venue of bread and circus. Do you think that that is a fitting epitaph for the democratic experiment?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Apr 22nd, 2008 at 12:22:48 PM EST
[ Parent ]


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