• Click Here
  • Click Here
  • Forex Capital Markets | FXCM, LLC
  • GFT Forex
  • IBFX
  • VantageFX
  • CMS Forex
  • avafx foreign exchange
  • dukascopy fx trading
  • forex club currency brokers
  • Marketiva Forex
  • www.Forex.com Gain Capital Markets
  • etoro

Write for OnlineForexTrading

Home » Online Forex Trading Blog » Growth In Euro Zone?

Growth In Euro Zone?


May Day was an emotional day throughout Europe as virtually every major city entertained protestors declaring their outrage at the crippling austerity programs that have done nothing to create jobs and little to boost morale. Despite the continued suffering of the unemployed, the euro picked up traction with the formation of Italy’s new government and the possibility that the ECB will reduce rates to 0.5 percent.

Yet, the debate about austerity vs. growth rages forward. What has become apparent is that the ECB’s strengthening of the regional banks has not translated to job growth. SMEs throughout the region report extremely tight credit markets and Europe’s SMEs are the largest job creators in the region by a wide margin. Euro zone SMEs account for 66 percent of euro zone jobs.

According to the ECB, banks have an abundance of capital but SME confidence is low. Consumer demand in Europe is low and SMEs do not see expansion as an alternative, regardless of the availability of credit.

Growth Comes To Table

ECB President, Mario Draghi, is expected to push for a pro-growth initiative at the upcoming euro zone summit. Draghi has garnered much needed support. Belgium, France and several other governments have joined the platform for growth.

Italy’s recently elected prime minister, Enrico Letta, informed Germany that Italy would meet its budget commitments but that the time for Europe to shift emphasis from austerity to growth had arrived. Letta is pro-growth and won election on that platform.

Perhaps the most telling statement came from German Chancellor, Angela Merkel, whose own economy is unexpectedly struggling. Merkel told the media; “Budget consolidation and growth need not be contradictory.” Of course, this conciliatory tone from Merkel may not hold water with her Parliament. Germany has been a staunch imposer of austerity throughout the region.

Growth and austerity may come to a head soon as Draghi is poised with his allies to push for growth initiatives. With German exports waning, Merkel may have to shift her position but this is not the way she usually conducts business.

The protestors gained some important support from Pope Francis, who said; “Work is fundamental to the dignity of a person.” Unemployment in Italy is 11.5 percent but is 40 percent for young workers.

The Pope told a May Day gathering at St. Peter’s Square; “I think of how many, and not just young people, are unemployed, many times due to a purely economic conception of society, which seeks selfish profit, beyond the parameters of social justice.”

UK Manufacturing Up

The UK appears to be building on the recent news that the economy escaped recession by growing at 0.3 percent in the first quarter 2013. Manufacturing, a ten percent contributor to GDP, posted stronger numbers than expected in April. Markit/CIPS Managers’ Index (PMI) posted a 49.8 rating, passing March’s 48.6 rating. A rating of 50 marks the transition to growth from contraction, a positive indicator for the Brits.

Mortgage lender Nationwide reported an increase in housing process of 0.9 percent in year-over-year comparisons. Although March was 1.0 percent better, the news was welcome in the distressed housing market.

If the UK is a successful model, it will be due to a strong position on aggressive easing and reform initiatives designed for growth. The country’s Funding for Lending Scheme whereby banks receive  inexpensive funds to be lent to businesses and households was a creative solution to a lingering problem. Small businesses have benefited from this plan.

The Funding for Lending Scheme has been extended through 2015 and global economies should take note. The road back for the UK may suffer other setbacks but the trend seems to be positive.

Most impressive is the country’s improving export numbers. In April, exports rose for the first time since July 2011. Exports increased to the Middle East, North America, Latin America and Australia. Sales in Europe continue to lag and this is England’s biggest export market.

Banks have served as middlemen for government initiatives to get money to SMEs. The euro zone should take note.

Euro Rises

The euro posted strong gains Wednesday, crossing the $1.30 milestone with emphasis. Meanwhile, the pound also gained against the dollar. Gains were based upon disappointing private sector employment reports from ADP. The Department of Labor’s report on Friday could be worse as it includes public sector employment which has been in the red every month this year. The sequester is beginning to rear its ugly head. The dollar fell to 97.12 against the yen, down 0.2 percent.

Tags: , , , , , , , , , , , , , , , , ,

About the Author -

Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses. Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.

Leave a Reply