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28 Apr 2009 @ 17:45, by Sandi Hunter
Europe faces ever deepening recession
By Chris Marsden
28 April 2009
Particularly revealing in the International Monetary Fund’s World Economic Outlook issued last week is its estimation of the precarious state of the European economies.
The IMF described the United States as lying at the centre of the global economic crisis, but also predicted a worsening recession in Europe. It estimates that the euro zone’s economy will contract by 4.2 percent this year, significantly worse than its January forecast of a 2 percent decline.
The EU states have incurred massive debts due to bank bailouts and stimulus packages, with a combined 2.3 trillion euros in financial guarantees, 300 billion euros in recapitalisation programmes and an additional 400 billion euros in various rescue and restructuring schemes.
The statistics agency Eurostat notes that Europe is in the midst of a deep economic recession, with industrial orders falling by 34.5 percent year-on-year. The euro zone’s external current account deficit reached 57.3 billion euros in the final quarter of 2008, almost three times the figure for the same period in 2007. It is not just exports that are declining as a result of the global slump. Direct investment abroad by the EU amounted to just 23.9 billion euros for the last three months of 2008, compared to 171.9 billion in the fourth quarter of 2007. Foreign investors also disinvested in the EU.
The cost of bailouts and declining tax revenues due to the slump has led to a spiraling of government deficits, which collectively have hit 2.3 percent of GDP for the 27-nation EU. The government debt to GDP ratio increased from 66 percent at the end of 2007 to 69.3 percent in the euro zone and from 58.7 percent to 61.5 percent in the EU.
Europe’s GDP is expected to fall by 1.2 percent, with the economy predicted to shrink by two percent, according to a report by the European Economic Advisory Group.
Unemployment is set to rise by an average rate of eight percent.
The IMF has said that the euro zone will face a worse recession than the United States, complaining that the European Central Bank was too slow to react to the impending recession and that Europe’s financial policies were not being implemented in a “sufficiently comprehensive and coordinated” fashion.
There is particular concern over the state of Europe’s banking system. While US banks have covered about half of their write-downs, Europe’s banks have taken only a fifth so far. In a bleak warning, the IMF noted that total write-downs would wipe out the world’s bank equity.
The Financial Times reported that Independent Credit View, the Swiss-based risk adviser, has warned of a “second wave” of debt stress hitting Europe under conditions in which its banks have much less in terms of reserve cushions than US banks.
Peter Jeggli, Credit View’s founder, states, “The biggest risk is in Europe... The Americans are ahead of the curve. European banks are exposed to US commercial real estate and to problems in Eastern Europe and Spain, where the situation is turning dramatic. We think the Spanish savings banks are basically bust and will need a government bail-out.”
The Financial Times comments, “Europe’s banks are exposed to a hydra-headed set of bubbles. They not only face heavy losses from US property, they also face collapsing credit booms in their own backyard and fallout from high levels of corporate debt in the eurozone. It takes longer for damage to surface with Europe’s traditional bank loans, which buckle later in the cycle as defaults rise. The ferocity of Europe’s recession leaves no doubt that losses will be huge this time.”
European banking is particularly exposed due to the collapse of the Eastern European economies.
Several countries have already gone cap-in-hand to the IMF, including Hungary, Serbia, Romania, Latvia and the Ukraine. In addition, the European Bank of Reconstruction and Development, the World Bank and the European Investment Bank have advanced a 24.5 billion euro support package for Eastern Europe’s banks.
Even so, there is every possibility of a collapse of one or more of the eastern European economies, which would have a domino effect that may lead to the collapse of neighbouring states and west European banks.
According to figures compiled by Handelsblad, Italy’s national debt is already well in excess of its GDP, Greece is approaching this figure and Belgium, France, Germany, Portugal and Austria all top 60 percent of GDP.
Germany
Numerous reports identify Germany as particularly vulnerable to the global recession due to its reliance on exports, which make up 40 percent of its GDP, and its exposure to east European debt.
The IMF has predicted that Germany’s economy will contract by 5.6 percent this year, while a group of German financial institutions predicts a 6 percent decline.
Germany may face an “especially persistent” recession and see a 23 percent decline in exports this year, pushing unemployment to close to 11 percent. Germany’s budget deficit will swell to 132.5 billion euros, or 5.5 percent of GDP in 2010, from 3.7 percent this year, the German institutes state.
Germany accounted for nearly a quarter of European bank write-downs last year. Its investments in eastern Europe ($450 billion, or four percent of German banking assets) raise further dangers. And not just for Germany.
Germany remains the engine of Europe’s economy. An ever worsening recession there will pull the rest of the continent in its wake.
Britain
The parlous state of the UK economy is the second major cause for concern, due primarily to the role of London as a finance centre.
The IMF has predicted that Britain’s GDP will contract by 4.1 percent this year, much greater than admitted by the government of Prime Minister Gordon Brown, and that Britain will suffer an ongoing recession.
In last week’s budget, Chancellor Alistair Darling predicted a 3.5 percent fall this year and a return to growth by 2010.
Commenting on the disparity, IMF head Dominique Strauss-Kahn said, “Part of the recovery relies on confidence and it is absolutely normal that governments all over the world will try to rebuild confidence in looking at the upper part of the range rather than the lower bound.”
“I would certainly have more pessimistic forecasts than most governments. Last year we were proven right,” he added.
The April 25 Wall Street Journal was deeply skeptical regarding Britain’s prospects, noting that “The UK, with a capital city that serves as one of the world’s premier financial hubs, has depended on financial services for one in five jobs and more than a quarter of its tax revenues... the plunge in first-quarter gross domestic product—[1.9%] the biggest since the 2.4% drop posted in the third quarter of 1979—presents a challenge for the UK government, which is taking on debt at a rate not seen since World War II, as it spends money to cushion the downturn and salvage its banking system. Over the next three years the government’s net borrowing requirement will be £488 billion ($718 billion).”
The IMF predicts that government debt in Britain will reach more than 80 percent of GDP.
Some measure of the extent of the slump is provided by the rise in unemployment to over two million, with predictions that it will top three million by 2010. In addition the latest British Chambers of Commerce monthly business survey found that 70 percent of companies plan to freeze or cut wages this year and half are thinking of making staff redundant in the next six months.
The IMF has warned that Britain’s housing market has still further to fall. With house prices having declined by 20 percent, the IMF stated that, as with Spain and Ireland, there was “a considerable distance left to run”.
David Cameron, leader of the opposition Conservatives, who are predicted to win next year’s general election, has spoken of creating a new “age of austerity”, vowing even deeper cuts than those pledged by the Labour government.
Spain
Spain is amongst the western European nations worst hit by the recession.
The IMF has predicted a prolonged slump in Spain’s economy as a result of the collapse in its housing market. It expects the economy to contract by 3 percent in 2009, as against government predictions of 1.6 percent. This month, unemployment topped four million, having doubled in the past year. Now standing at 17.4 percent, it is widely expected to top 20 percent fairly shortly.
The Socialist Party government of Jose Luis Rodriguez Zapatero has responded with a 70 billion euro fiscal stimulus programme and has pledged more to come. But The IMF has issued a strong warning that a worsening budget deficit expected to rise to 8 percent of GDP raises dangers of economic collapse.
France
In France, the Sarkozy government has estimated that the economy will shrink by 2.5 percent this year. Prime Minister Francois Fillon said, “What is certain is that 2009 will be a year of severe recession.”
This estimate is contradicted by the OECD, which predicts a contraction of 3.3 percent. France’s budget deficit stands at six percent.
Last month, unemployment rose by between 60,000 and 70,000, following 79,900 job losses in February. The unemployment rate presently stands at 8.2 percent, but is expected to top 10 percent by the end of the year. Unemployment is already a massive 21.2 percent and rising amongst those in France who are under 25.
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1 comment
1 May 2009 @ 17:33 by : It's everywhere....
Soon there won't be one country that is not feeling or suffering from the crises of society (materialism/consumerism)....when will humans learn? Read on....
May Day 2009: Reports on rising class struggle from around the world
By our reporters
1 May 2009
This year’s May Day, the workers’ holiday celebrating the traditions of international proletarian solidarity, is being marked as the global economic crisis is pushing larger sections of the world working class into social struggle.
In the US, there is mounting social anger as trillions of dollars in government funds are shoveled into the banks, but defaulting homeowners and workers facing layoffs or financial difficulties receive no assistance. This took conscious shape in last year’s occupation by workers in Chicago of a Republic Windows & Doors plant that was slated for closure.
In another indication of rising class tensions, a recent Rasmussen poll found that in the US—a country where anti-communism was propagated as virtually a state religion, where any positive reference to socialism or the working-class movement is forbidden in the mass media—20 percent of the population, and 30 percent of the youth, find socialism preferable to capitalism.
There are growing signs of working-class resistance in Canada, including the occupation of auto parts maker Aradco in Windsor. There is also massive anger at the concessions imposed by the Canadian Auto Workers (CAW) union on workers at Chrysler, which the union will extend to GM and Ford workers in the name of “fairness” and “competitiveness.”
As the crisis spreads to Europe, there are signs that working-class struggles are not only affecting more and more industries, but spreading geographically and taking on more political form.
Several governments across Eastern Europe have collapsed in recent months, amid protests against their handling of the economic crisis or attempts to impose austerity measures in exchange for access to IMF bailout funds. Protests in the Latvian capital of Riga forced out the Latvian government, and protests have shaken the Ukraine.
The governments of Mirek Topolanek in the Czech Republic and Ferenc Gyurcsany in Hungary have also fallen. Gyurcsany was famous as the politician who, in remarks secretly taped and leaked to the press in 2006, admitted that his election team “lied morning, noon and night” about the state of the country, which had only survived through “divine providence, the abundance of cash in the world economy, and hundreds of tricks.”
In France, millions are expected to march in May Day demonstrations, after similar numbers marched in mass, trade-union-organized strikes held in January and March. Strikes are shaking the automobile, energy, transport, and civil service sectors. Workers around the country are occupying workplaces and detaining company management, in an attempt to halt plant closures and job losses—unemployment is increasing at the rate of 1 million a year and is expected to reach over 10 percent this year.
One recent poll found that only 7 percent of the French population opposed workers’ holding their bosses hostage.
French workers from the tire maker Continental’s plant in Clairoix, which is slated for closure, traveled to Continental’s plant in Hanover in Germany for a joint demonstration against the closure both factories. Their German colleagues greeted them with a placard in French bearing the image of Karl Marx and proclaiming the famous call from the Communist Manifesto: “Workers of the world, unite.”
According to the IMF and the latest German government figures, Germany's economic decline will reach 6-7 percent, exceeding predictions for the US. Since the Second World War, the German economy has never declined by more than 1 percent in any economic downturn.
Unemployment is clearly set to rise dramatically in Germany, and the bourgeois press openly worries about the social and political consequences. The Süddeutsche Zeitung recently warned in an editorial that “the peace will soon be over,” as “the crisis will reach its third phase in the coming months: the social security system will start to totter.” This will have a devastating effect, especially for workers on reduced hours now barely getting by on unemployment funds from the government.
In Britain, sacked workers have occupied Visteon plants in Enfield, Basildon, and Belfast. Trade union official Keith Flett noted, “I think if the [Visteon workers] actually win, we will see a big spread of this kind of thing.”
The past twelve months has seen a wave of strikes, protests and demonstrations by workers throughout Asia and the Indian subcontinent in response to attacks on jobs, wages and working hours brought on by the global financial crisis. The rising cost of food and other basic commodities has also precipitated widespread strikes.
The March issue of the Hong Kong-based Trend magazine reports that there were 546,470 labour disputes in China from last September to March—a seven-fold increase from the end of 2007. In the export-dependent coastal provinces like Guangdong, Fujian and Jiangsu, the increases are 10-fold and a direct result of the global financial crisis, with sackings and wage cuts affecting tens of millions of workers. The magazine also notes that in the first two months of 2009, more than 500 private businessmen and senior executives were murdered, as a result of not paying or cutting wages or the abuse of workers.
Hong-Kong’s Cheng Ming magazine reports in its February edition that protests, petitions and demonstrations in China reached 127,467 in 2008 and involved more than 12 million people—compared to 87,000 incidents in 2005. Of these cases, 467 involved storming local government departments, 615 attacks on police and judiciary authorities and 110 attacks on government buildings and vehicles.
In India, there have been 12 nationwide strikes and scores of industry-wide walkouts and demonstrations over the past 12 months involving truck drivers, teachers, doctors and public servants demanding wage rises and full-time employment and opposing state and union government privatisation measures. In January, national strike action was taken by 50,000 oil and gas engineers and hundreds of thousands of public servants, including 300,000 in Bihar, 45,000 in Uttar Pradesh, 250,000 in East Singhbhum, 450,000 in Jammu and Kashmir and 400 in Ukhurl, over wages. In February, 5,000 public servants in Arunachal Pradesh walked out for salary increases.
Popular discontent has erupted in Vietnam over rising inflation with hundreds of strikes for wage rises and improved conditions in the last year, the majority of them in foreign invested enterprises. In February last year more than 5,000 workers went on strike demanding pay rises, more allowances, and cuts to working hours at the Japanese-owned auto-part manufacturer Yazaky Eds Viet Nam Ltd. The next month more than 10,000 walked out demanding higher pay at the South Korean-owned Tae Kwang Vina shoe factory. According to official figures, labor strikes have risen, from 139 in 2003, to 147 in 2005, 541 in 2007 and 649 in the first eight months of 2008.
Major disputes elsewhere in Asia in the past three months include protests by over 2,000 sacked workers at several Indonesian furniture manufacturers over unpaid entitlements in February. Hundreds of retrenched employees at other Indonesian factories are also reported to have occupied their workplaces until they were paid their legal entitlements. In the Philippines, 250 sacked furniture workers picketed their factory that month forcing it to close for two weeks until they were granted entitlements and severance pay.
In March, 200 Philippines workers occupied their company’s shipyard for several days opposing plans to retrench 400 employees. In India, 600 retrenched workers from Hero Honda in Rewari held a six-day march to protest against the retrenchment of 1,800 Honda employees. In the same month more than 4,000 jute mill workers in Bangladesh began protests over the sudden closure of their factory and the non-payment of severance pay and other entitlements.
In April, 380 workers were locked out of the Michelin Thailand tyre plant for refusing to accept a 13 percent pay cut; in Korea, Ssangyong Motor employees voted for strike action and held a four-hour walkout to oppose the destruction of over 2,600, jobs or 37 percent of the company’s 7,100-strong workforce.
In Latin America, despite previous boasts by the likes of Brazil’s President Luiz Inacio Lula da Silva that the financial crisis was only a US problem, the impact of the financial meltdown is making itself felt in falling exports and commodity prices, the drying up of credit and the wholesale destruction of jobs.
Workers throughout the continent have been thrown into struggles against mass layoffs and plant closures.
In Argentina, workers have carried out factory occupations to halt layoffs and plant shutdowns. After the German auto parts maker Mahle announced the shutdown of its factory in Rosario, some 500 workers took it over to defend their jobs and have held the plant for the last week.
In Chile, workers carried out a general strike on April 16 under the slogan “Workers must not pay for this crisis!” Industrial output in the country has contracted 7.1 percent compared to last year, and the official unemployment rate has risen to 9.2 percent.
In Venezuela, on the eve of May Day, 2,000 metal workers in the province of Ponteverde took to the streets, blocking roads and burning tires in preparation for a strike that is set to bring out some 27,000 workers in the province.
And, in the Dominican Republic, a general strike called this week by popular organizations in the northern province of Duarte over social conditions was met with armed violence by police and army troops, with two shot to death, including a 13-year-old boy, and a number others wounded.
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11 Mar 2009 @ 22:39: 
