Austerity in Europe is Also a Legal Concern

Published by Filipe R. Costa on Tue, 09/04/2013 - 10:39 in
passos coelho

Daily Market Commentary for April 9: The EZ economy continues to sink pushed by itself. Besides being a political, social and economical issue, the EZ austerity is now also a legal problem with the Portuguese Constitutional Court rejecting government plans to cut personal income.

It is interesting to see how concerned US officials are with their economy, with parties blaming each other for the current unemployment level and lack of growth. The FED is loading the truck with $100 bills in a desperate attempt to cut on the unemployment rate and Obama is trying everything to avoid fiscal cuts at a moment economic growth is still in infant months. But, wait a minute! The unemployment rate in the US is 7.6% and the economy expanded for 14 consecutive quarters! That certainly doesn’t compare with the broken engine we currently run in the EZ. What’s interesting is the blind insistence in austerity with an economy in recession mode and with 12% of unemployment rate. US officials are certainly pointing us their fingers while laughing at our stupidity. Jacob J. Lew, the new US Treasury Secretary is now in Europe in an attempt to understand why EZ officials insist on this. Of course he isn’t here to help us fight our stupidity but because this stupidity is hurting the US as their companies saw their overseas profits sank.

In Portugal, the Constitutional Court said the government has to revert some of the measures taken to fight the deficit. They saw a yellow card last year but insisted in several new measures that in fact had very few chances of being approved by the Court. Passos Coelho promises new measures to satisfy the troika but the government is wounded and we expect a new wave of instability to rise in Europe.

Years after all these austerity packages were first applied, the EZ is a rotten economy with no chances of recovering. Even though many European officials have been stating these tough measures were necessary and are now near the end, we know that’s not true. These measures failed at fighting against deficits and created huge unemployment problems that will take ten years to solve. It’s time to try a different approach, something I just don’t see happening until there is a change in several governments compositions, especially in Germany.

With all this in mind I don’t see a reason to back the Euro. The pound has good prospects of recovering against the single currency over the next few weeks and the pair EUR/USD is a short candidate at the current 1.3040 level. Regarding the main equity indices I see them overvalued but still don’t think they will be pushed down at this time, so I prefer to be out.