The Economist claims that America isn’t getting the (disastrous) economic fallout it deserves for starting the credit crunch. Rather, it’s the Europeans who are suffering more:
The credit crunch started in America, but Europe may yet prove the bigger victim.
The housing bust across the Atlantic was the trigger for the credit crunch, so justice demands that America suffer most from the fallout. But America has not so far followed the script, weathering the storms better than it expected. Its GDP suffered a tiny decline at the end of 2007, but it grew at an annualised rate of around 2% in the second quarter of 2008.
(Meanwhile), the euro-area economy shrank at an annualised rate of 0.8% in the second quarter, the first such reverse since 2001.
Details of the fallout:
–In Europe, capital spending is a strong driver of economic growth. When foreign demand was good, export firms made good profits. Now, however, higher wages, high commodity prices, and banks holding back on leans beneficial to business growth have cut down on export orders, fundamentally weakening the economy.
–Germany, a global credit supplier, had an current-account surplus of 7.7% of GDP last year. This year, its exports are hurting. The article states that “orders for German engineering goods fell in June by 5% from a year ago, according to VDMA, a Frankfurt-based industry group. Foreign orders fell by 7%.”
–Spain has been hit especially hard:
Spain accounts for one-eighth of euro-area GDP but until recently was generating a much larger share of consumer spending and new jobs. Now the Spanish consumer is in retreat—retail sales fell by almost 8% in the year to June—and unemployment is rising.
–France can’t export to Spain because Spanish people aren’t buying as much.
–Europeans don’t spend much anyhow. Now they’re really pinching their pennies–and causing more trouble in the economy. According to the article, “retail sales across the region fell by 3.1% in the year to June.”
What’s going on? Many pundits and reporters blame disparities between EU members for the bloc-wide fallout. This Spiegel excerpt says a lot:
…the euro zone is feeling the pinch from disparities among its member states, which have escalated domestic issues into regionwide economic problems.
The main culprits are the so-called PIGS: Portugal, Italy, Greece, and Spain. After posting above-average growth since joining the euro zone in 1997, the countries’ economies are now stalling due to a cutback in bank lending and an increase in loan defaults. Outstanding corporate debt in Spain, which until recently accounted for a third of Europe’s growth, currently stands at 127 percent of GDP. As most of that is linked to the country’s floundering construction industry, banks are unwilling to continue financing the sector, which means bankruptcies — and job losses — are starting to add up.
Ah…a German publication blames PIGS for the economic slowdown. Revealing, is it not?
I suppose there’s one upside to America’s seeming downfall. Between Americans and immigrants, we have nobody but politicians to blame.