European Summit Is Underway

Published by City Blaster on Fri, 15/03/2013 - 08:53 in


EU, US, Barroso, EU Summit

Daily Market Commentary for March 15: Do you believe in economic recovery in the US? And about the EU? Well, if you’ve answered yes and no, exactly on this order, then we share the same opinion.

It’s not that I’m some kind of skeptical on the Euro project or something but I must admit the US is one step ahead right now. Instead of applying any deep austerity on their economy they tried to avoid the fiscal cliff while having the central bank supporting the government. What does Europe have?

While I leave the answer to you, let me just remember that another summit is underway in Europe. Until now we already have some positive signs as there are hints that some countries could be given some additional time to meet their deficit goals while they address the most important issues - unemployment and growth. Well, it took years for the EU to understand that austerity is the solely responsible for the deep crisis we currently have and that this is not the right time to take harsh steps to control debt, just because they won’t get results under a deep economic contraction.

Austerity was a major economic policy failure as Portugal is an excellent example. Even after implementing every single measure imposed by its creditors, the country couldn’t reduce debt in a substantial way and incurred in very high social costs doubling the unemployment rate to 17% and experiencing a 3% decrease in GDP. And in the end, as stated by the Portuguese Prime Minister, at least they could reduce debt costs and return to markets. Fortunately that is right but it was not due to Portuguese reforms but rather to the ECB commitment to keep the Euro alive, especially Draghi’s comments last year in London. Had the central bank started this sooner and we could have avoided austerity at all.

Now we have the EU Commission President concerned with unemployment and admitting something must be done. Unfortunately this is too late and it will take years for the job market to return to normality.