Economic Worries in Europe

Plus a Black Friday Update

There are a couple of worrisome reports from the Telegraph today, one about Germany and the other about the UK.

Germany

Chancellor Angela Merkel has proposed another bank bailout in Germany as part of another large economic package.  This is not a popular idea with the public and I sense a hint of desperation involved.  Another credit contraction has been predicted with 90 billion Euros of bad loans being written off in 2010.

A survey by Munich's IFO institute revealed yesterday that lending conditions in Germany had tightened sharply in November. Some 53pc of large manufacturing companies found credit hard to obtain, suggesting that the problem has spread beyond small firms without access to the bond markets. "The financing situation of firms remains critical and poses a risk to economic recovery," said the group's president, Hans-Werner Sinn.

If the problem is spreading to the larger industries in Germany, that spells trouble for all of Europe because they are the manufacturing engine of the EU.  What worries me even more is the solution Mr. Sinn proposes:

He said it was an error for the government to buy toxic debt, urging Berlin to direct equity stakes in the banks through partial nationalisations.

Oh great, fascism in Germany, what could go wrong with that?  It makes bailing the banks out look good by comparison.

Interesting stuff, but the quote of the article involves something I think is happening in the US as well:

Volker Treier, chief economist for the German chamber of industry and commerce (DIHK), said worries were mounting among Mittelstand family firms. "The real test has yet to come: the drastic decline in sales has not yet shown up in balance sheets," he said.

I have to wonder what our balance sheets really look like. Creative accounting may be hiding a lot of bad news.

United Kingdom

Over in Britain, Morgan Stanley has warned that the UK may have a massive debt crisis next year. The US company’s prediction is that the economy there will collapse completely, taking the pound sterling down another 10%. Oddly enough, they think the dollar will go up, so I am taking their analysis with a shaker of salt.

Quote of the article:

While the report – “Tougher Times in 2010” – is not linked to the Dubai debacle, it is a reminder that countries merely bought time during the crisis by resorting to fiscal stimulus and shunting private losses onto public books. The rescues – though necessary – have not resolved the underlying debt problem. They have storied up a second set of difficulties by degrading sovereign debt across much of the world.

Boy that really gets to the point.  All these stimulus packages and bailouts have been stall tactics with long term negative consequences. When all is said and done, historians will look back and point to them as madness.  Well, except for utopians who think government solves everything, I don’t think that will ever go away.

Black Friday in the USA

Here in the States, Black Friday weekend sales were disappointing as while there were more shoppers, they each spent less. Unemployment and under-employment still loom large with no relief in sight. Personal debt is at suffocating levels too. Is it any wonder people are spending less?  Hoping the consumer will bail us out is ridiculous as long as there is high unemployment.

Wish I could find some good economic news for the future.