Europe: Three Very Easy Predictions For 2015

Business, Company Strategy, Europe, European economy, European petrochemicals, Oil & Gas

By John Richardson

anti-austerity-march-londonHERE are some alarming facts about Europe:

  •  If you include all the people who have become disheartened and so have dropped out of the labour force, the Spanish employment rate fell from 66% in 2007 to just 56% in 2014.
  • In Greece, employment has fallen to below 50% since 2007.

“Chancellor Angela Merkel of Germany, the most high-profile advocate of the argument that only through fiscal prudence can nations achieve stability and prosperity, has given little ground even as larger and more influential countries like France and Italy have started balking at her demands,” said the New York Times in this article.

“But at the street level in Greece, there is little debate anymore, if there ever was. The images of suffering here have not been that different from the grainy black and white photos of the United States in the 1930s. Suicides have shot up. Cars sit abandoned in the streets. People sift garbage looking for food.

“About 900,000 of the more than 1.3 million who are out of work have not had a paycheck in more than two years, experts say.

“Kostas Polychronopoulos, who runs a volunteer soup kitchen in Athens and has been out of a job since 2009, said he had seen many shocking things in recent years, including an old woman in a fur coat who watched from a distance for a long time before finally approaching to accept food.

“When he insisted on taking her home, he found she was living in an empty apartment. ‘She didn’t even have water,’” he said.

This makes my three predictions for today, on what will happen in Europe in 2015, very easy indeed. They are.

1.) There will be a widening gap between the pro and anti-austerity political camps. The only logical way out of for the anti-austerity supporters is achieving debt forgiveness – or simply defaulting on debt. And in the case Greece, assuming that the left wing party, Syriza, wins this month’s general election, the only way for the new government to successfully accomplish a debt write-off looks as if it would have to involve Greece exiting the Euro. Perhaps this is why the German government was less than fulsome in its denials of a story that appeared in the German newspaper Der Spiegel, which claimed that it was already planning for a Grexit.

2.) This turmoil will lead to very low GDP growth – if there is any growth at all.

3.) Meanwhile, deflation will become more firmly entrenched, which will cancel out the bulk of the benefits from lower oil prices. The focus will be in paying down debt rather than spending money a deflation increases the real cost of our liabilities. And, anyway, why buy anything today when it might be cheaper tomorrow, particularly if you are one of the more than 50% of people in Greece who don’t have a job?

All the above could have been avoided if the pro-austerity camp, led by Germany, had already accepted defeat and moved on to the inevitability of debt defaults and debt restructuring.

And we would be already heading to a sustainable recovery if the right policies to revive Europe’s economy had been adopted, which would have been based around the obvious conclusion that demographics drive demand.

Europe has to come to terms with its ageing population. You cannot print babies and no amount of quantitative easing is going to change this.

It is still not too late, of course, and perhaps the rise of parties such as Syriza offers some hope in that it will force politicians everywhere to think again.

But as far 2015 goes, you can get rule out any prospect of recovery. Sadly, things can only get worse.

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