Some very interesting and alarming news emerged last week about the Eurozone, but do we hear much about it in the UK?
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It seems that European banks are suffering a bit of a share price melt-down at the moment, with their prices falling to near 1980s levels.
And a Reuters report from last Thursday says that a combination of negative interest rates, – something I’ve talked about before – falling bond yields, more red tape and the increasing likelihood of a recession has “wiped out most of the value of European banks” and that their shares are “now at meltdown prices approaching the days of the Berlin Wall”.
And it goes on to say that those banks are now worth about the same as when Greece, Ireland and Portugal were queueing up for bailouts.
The upshot is that the wider banking sector for the Eurozone is worth about half a trillion dollars, or as Reuters points out, about half the size of Microsoft as well as now being only one third the size of US banks.
In fact, Reuters says that Eurozone banks have lost 84% of their value since 2007.
And this will hit growth in the Eurozone, as it makes it harder for banks to raise the money needed to then loan it out to businesses for expansion.
And this, the article goes on to say, means that European Companies looking for finance will be forced to raise it on the markets, or borrow from foreign banks.
And this will not be helped by news out today that inflation in the Eurozone is just one percent, actually 0.9% if you look at the core rate that excludes volatile goods.
And this is the lowest inflation rate since the middle of 2016.
Further, the Bundesbank has warned that the German economy could shrink again in the third quarter of 2019, so putting into a technical recession.
This all points to the European Central Bank (ECB) having to tweak its interest rates down further next month and buy more bonds in an effort to stimulate the economy.
And on this Alex Rankine in Money Week reports that because of the negative interest rates imposed on banks for overnight deposits, Eurozone banks have paid 21 billion euros to the ECB since 2014. The current rate is minus 0.4% and some expect this to go to minus 0.6% next month putting more of a squeeze on the Eurozone banks.
And that could force the banks affected into a vicious negative feedback loop.
And Chen Gong writes in the Brussels Times that:
“The recent frequent layoffs in the European banking industry have highlighted its vulnerability in the post-crisis era, and in the context of global trade war and economic slowdown, this vulnerability may eventually evolve into a trigger for a new global economic crisis.”
I personally do not see the Eurozone or wider EU surviving a blow of that size.
And the Remainers want us to wait around still shackled to the EU until this happens?
I got this info from five sources: Reuters, Market Watch, the Brussels Times, Money Week and the Washington Post, and none of them mention Brexit at all in this context. So I can only conclude that it’s purely a Eurozone problem.
And, if UK Remainers can take what they see as the expert opinions of the Brexit Project Fear merchants at face value – then, shouldn’t they also heed these warnings?
And the big difference is that the Project Fear reports are based on a 12 month old report – the ones I cite are much more recent.