European Tribune - Community, Politics & Progress.

Europe Is (not) Doomed, by default

by Jerome a Paris
Tue Jul 7th, 2009 at 08:46:11 AM EST

A lot has been said about how European banks are in even more trouble than US ones (more leveraged, less disclosure of losses, exposure to Eastern Europe) and how that dooms Europe. But the reality is that, other than in specific markets where there were big construction/real estate bubbles (Ireland and Spain - with Spain protected to some extent by its more conservative banking regulator during the bubble), European banks still have sound domestic markets to stand on: they took losses on toxic US assets, but their core businesses are, themselves, not toxic. US banks have to live with a devastated real estate market, clients with permanently lowered net equity, and focused on restoring their personal balance sheets, and an economic landscape dominated by massive unemployment.

As the graph above suggests (from yesterday's FT), European companies are not suffering from the economic crisis as much as US ones - which in turn means that banks and other financial investors have fewer new losses to nurse in that respect, and that, put together, is ultimately what will drive the health of the economy.

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Europe Is (not) Doomed, by default | 6 comments (6 topical, 0 editorial, 0 hidden)

Re: Europe Is (not) Doomed, by default (4.00 / 3)

That's an interesting graph. But, I am also curious about the Sep 06 - Dec 07 period: why was Europe's corporate default rate higher then, and why the drop at the end of it?

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Tue Jul 7th, 2009 at 12:59:39 PM EST

Re: Europe Is (not) Doomed, by default (none / 1)

Oh, and where is the tip jar?

*Traitor*, n.
A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.

by DoDo on Tue Jul 7th, 2009 at 12:59:55 PM EST
[ Parent ]

The graph does not show long enough (4.00 / 5)

periods, but I suspect that the 06-07 is the normal rate in good economic times, and the lower rate after that (and in the US) is artificially lowered by all the crazy debt companies could borrow at that time ("covenant-lite" debt, "payment-in-kind" clauses) which allowed them to refinance even when in trouble, and to delay formal default even when things were going badly.

In other words, at that time, problems could be pushed further into the future thanks to easy debt.

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

by Jerome a Paris (jeromeguillet@yahoo.fr) on Tue Jul 7th, 2009 at 01:57:42 PM EST
[ Parent ]

Re: Europe Is (not) Doomed, by default (none / 1)

It is hard to understand what the chart has to do with the article

FT.com / Companies / Industrials - Exporters squeezed by euro strength

The strength of the euro is forcing European companies to step up cost-cutting to compete with rivals from the US and elsewhere amid fears that it could slow their recovery when demand picks up.

I mean, the other two are about the EUR/USD exchange rate and the drop in exports since 2008, so those make sense.

But the comparative default rates?

A man of words and not of deeds is like a garden full of weeds; a man of deeds and not of words is like a garden full of turds — Anonymous

by Migeru (migeru at eurotrib dot com) on Tue Jul 7th, 2009 at 01:07:57 PM EST

indeed (4.00 / 4)

that's why I used the chart without reference to the article. I suppose I could have used the angle that they provide data that directly contradicts their "Europe.Is.Doomed" theme...

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

by Jerome a Paris (jeromeguillet@yahoo.fr) on Tue Jul 7th, 2009 at 01:19:39 PM EST
[ Parent ]

Re: Europe Is (not) Doomed, by default (4.00 / 6)

FT.com: UK [sic!?] - German industrial orders surge

... Manufacturing orders were 4.4 per cent higher in May than in April, according to the German economics ministry, a jump that surprised economists, who had expected an increase of 0.5 per cent.
The jump from April marked the third successive month in which orders rose, and the biggest one-month gain since June 2007. However, order volumes were still 29.4 per cent below the level of May 2008.

When you (correctly) give year-on-year figures to adjust for seasonal effects you have to also give the month-on-month change of the year-on-year figure. Newspapers never do.

...
Customers outside the European Union contributed most to the May surge, ordering 8.2 per cent more than in April. Domestic orders rose 3.9 per cent, while orders from the EU were up 1.2 per cent.

So, there. The fears detailed in yesterday's article, that the strength of the Euro would hurt the long-term exporting prospects of German firms, is belies the reality of actual demand for German exports.

[Europe.Is.Doomed™ Alert]

A man of words and not of deeds is like a garden full of weeds; a man of deeds and not of words is like a garden full of turds — Anonymous

by Migeru (migeru at eurotrib dot com) on Wed Jul 8th, 2009 at 05:58:47 AM EST

Europe Is (not) Doomed, by default | 6 comments (6 topical, 0 editorial, 0 hidden)

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