Happy New Year?
On Monday, January 5, 2015, the Euro fell to its lowest rate in a decade against the U.S. dollar, at $1.18. Analysts said this is based on three major investor concerns:
- The European Central Bank looking to begin quantitative easing—i.e. printing more money to buy government bonds. (Sound familiar?)
- Continuing fall of oil prices which also have affected stock investments.
- The coming vote in Greece, which could see the country break with the European Union.
The question for EU policymakers: Can they hold the EU together if Greece does break away, or if it decides to stay and demand a renegotiation of its bailout commitment. And, which either of those holds true, how will EU chiefs handle other struggling countries which may decide to follow suit, such as Spain and Italy?
Greece will elect a new president on Jan. 25, the vote called in response to heavy public discontent over austerity measures placed on Athens by those funding the bailout, led by the International Monetary Fund (IMF). Leading the polls for the coming election is the main opposition party, Syriza Unifying Social Front (Syriza), over the center-right New Democracy.
Syriza has voiced heavy criticism of the IMF-imposed austerity, and indicated a desire to leave the EU. However, the party’s presidential candidate Alexis Tsipras recently indicated that he didn’t want to flee the EU, but rather renegotiate the bailout. But both logically could lead to damaging upheavals from those other EU struggling nations.
Youth Unemployment Critical
At the center of public anger in Greece and elsewhere in the EU: youth unemployment.
The IMF’s December 2014 report titled Youth Unemployment in Advanced Economies in Europe: Searching for Solutions noted:
Unemployment is still unacceptably high, reducing the capacity of economies to grow as skills atrophy and talent migrates elsewhere. Youth unemployment is a particularly serious problem. The youth unemployment rate stood at an unprecedented 23 percent in the euro area in mid-2014, well above the rate in 2007. This reflects a combination of sharp increases in unemployment during the crisis, together with persistently high levels of unemployment, although the mix varies across countries.
Reuters reported Dec. 11 that Greece’s overall unemployment rate in September was 25.7 percent, actually a move down. But it’s hard to see how a voting public later this month will consider that figure positive.
Greece isn’t alone in feeling the pinch. France’s president Francois Hollande on Jan. 5 took responsibility for new reports of his country’s high unemployment figures. France is the EU’s second largest economy behind Germany,
What Effect on U.S., NATO?
The EU’s struggling economies and growing political turmoil certainly will affect the United States and NATO’s efforts at opposing Russia. The EU has supported U.S. efforts, with both declaring economic sanctions on Moscow. But the EU has been more reluctant at continuing those as its financial woes have continued, and with European countries depending heavily on Russian supplies of oil and natural gas. EU chiefs have also expressed concern for being able to continue full funding for NATO, which has been hoping to push closer to Russia. The EU should logically be striving harder for a solution to the volatile Ukraine situation, which is at the root of the grappling with Russia.
Russia is seeing itself moving toward recession in 2015, mainly due to lower and lower oil prices, but also the West’s imposed economic sanctions. But China recently said it would support Russia’s effort at economic stabilization against the Western onslaught, obviously a plus to Moscow despite the global economic decline.
Also, Russia’s financial stumbling realistically doesn’t help the U.S., according to noted investment analyst Jim Rickards, author of the books Currency Wars and The Death of Money. Rickards pointed out recently the reality of interdependence in the global economy, saying Russia’s economic struggles will end up affecting U.S. investors and pensions.
What few analysts seem to want to touch: the volatile derivatives figures worldwide. They hover at around $700 trillion, far higher than global gross domestic product, and higher than their level at the time of the 2007 world economic meltdown. Derivatives and private debt were major reasons for the economy’s downfall then. And private debt is currently at record highs.