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They can't all be right

Posted by Richard Friday, April 24, 2009


EU economic and monetary affairs commissioner Joaquin Almunia is telling us that the European economy is showing some positive signs that it is closer to a recovery than before.

"Looking at some indicators in Europe," he says, "some of them are sending us some positive signals, (but) it is not yet evident that we will start a recovery tomorrow. We still have a lot of difficult tasks ahead of us, but some positive indicators are indeed welcome." Almunia adds that, "If we are not yet in a recovery, at least we are closer to the bottom, and closer to the beginning of the recovery than we were."

Then you get Ambrose reporting that "a clutch of political and labour leaders in Germany have raised the spectre of civil unrest after the country's leading institutes forecast a 6 percent contraction of gross domestic product this year".

This is a slump reminiscent of 1931 and bad enough to drive unemployment to 4.7 million by 2010. Thus does Michael Sommer, leader of the DGB trade union federation, call the latest wave of sackings a "declaration of war" against Germany's workers. "Social unrest can no longer be ruled out," he says.

On top of that, we have Peter Jeggli, of Swiss risk advisers Independent Credit View. He warns that a "second wave" of debt stress is likely to hit the UK and Europe this year as the turmoil moves from mortgage securities to old-fashioned bank loans.

He adds that the financial crisis was "front-loaded" in the Anglo-Saxon countries and Switzerland because their banks invested heavily in credit securities. As tradeable instruments, these suffered a cliff-edge fall when trouble began, forcing harsh write-downs under mark-to-market rules.

It takes longer, we are told, 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.

What to make of all this is anyone's guess. For all the doom and gloom – and perhaps false optimism – selective figures and dire warnings can be misleading. For instance, in March 2005, German unemployment rose to 12.6 percent, driving 5.2 million people out of work – and there was no significant civil unrest.

In a world where everybody has an opinion and everyone is an expert, is it permissible to say that we don't have the first idea what is going on?

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