Euro Zone Is Imperiled by North-South Divide

When economies run into trouble and start slowing down, governments often turn to devaluing their currencies to make exports cheaper, and therefore more competitive.  The U.S. is in effect doing this now, by printing more money and engage in quantitative easing, driving down the value of the U.S. dollar worldwide.  In the Euro zone, however, individual countries do not control the value of the Euro.  The Euro zone makes sense when countries have similar economic profiles, but recently economists have realized that southern European countries like Portugal, Spain and Greece have uncompetitive economies, with high social benefit costs, high budget deficits, and high wages.  Unlike bigger and more competitive economies in France and Germany, however, they lack strict work habits, innovation, and suffer from inefficient labor markets and tax systems.  This divide is causing a crisis in the Euro zone, a crisis some believe may result in the ultimate embarrassment: the abandonment of the Euro experiment altogether.
 
Euro Zone Is Imperiled by North-South Divide - NYTimes.com

Cool Nissan Commercial from the EU

Europe’s Choice: Growth or Safety Net - WSJ.com

The WSJ has an excellent Page One article this morning about Europe, and the hard choices Europeans have to make. Creating the EU free trade zone and adopting a common currency was meant to make the Euro zone a global economic powerhouse, but now that the Euro is ten years old, many economists believe that Europe faces a future of economic stagnation unless member countries decide to ditch old safety nets designed to protect the poor and unemployed in favor of more open-market liberalism. Failure to do so, they warn, will lead to even more economic pain ahead for Europeans.

Europe’s Choice: Growth or Safety Net - WSJ.com

Hedge Funds Try 'Career Trade' Against Euro - WSJ.com

If you've been thinking about going to Europe you may want to wait just a few more weeks if you can. The Euro, which has been as high as 1.50 against the dollar in the last year, is currently trading at 1.35. There is now talk about the Euro achieving parity with the US Dollar, something absolutely no one could have predicted. Part of the reason for the movement is the role of currency traders, who are looking at the battering the Euro is taking as an opportunity to make lots and lots of money. Good for tourists, good for European exporters (Airbus and French wine), probably bad for European carmakers who locked in hedges at a stronger rate, good for European companies that can take advantage of the low rates to lock in future hedges (no one expects the dollar to become stronger than the Euro), and bad for European companies buying oil priced in US dollars. Isn't currency fun?

Hedge Funds Try 'Career Trade' Against Euro - WSJ.com

Spain Stresses the Euro

Could Spain leave the Euro zone? That's certainly the subtle implication in this morning's Wall Street Journal. A combination of factors is stressing Spain's economy to the breaking point, and being in the Euro zone means the government's ability to respond is very limited. A brief recap: unemployment is at 20%. A housing bubble has burst, leaving many homeowners feeling poor and upside down on mortgages. The GDP contracted nearly 4% in 2009 and is expected to shrink again this year. The country is in its worst recession in 50 years. As a result, holders of Spanish debt are demanding higher interest rates, requiring the government to go even deeper into debt. Unlike the current crisis in Greece, though, Spain is a lot bigger -- it's the fourth largest economy in the Euro-zone, and a debt crisis in Spain would be a lot more disruptive than what we've seen so far from Greece.

Spain has three options: do nothing and live with years of economic stagnation, launch an "austerity program" to cut back on government spending including generous government benefits for the unemployed, or leave the Euro zone. Leaving the Euro would immediately allow the government to devalue its currency, allowing exports to become cheaper and the economy to grow again. While that seems like a dramatic step, the first two options are politically unappealing. In either of the first two options, richer European countries may have to step in with a bailout -- to the tune of more than 250 Billion Euros -- to maintain confidence in the Euro.

Bottom line: anyone or any company contemplating doing business in Spain is going to have to look very closely at any proposition, because the economy seems to be headed for some really rough waters and no one knows when things will become calm again.


The Euro's Final Battleground: Spain - WSJ.com

Tuna May be Off the Menu Soon

If you like tuna sushi, it may be time for you to enjoy it one last time. Today, the United Nations group that oversees the Convention on International Trade in Endangered Species recommended that the world should ban the fishing and export of Atlantic bluefin tuna. This follows on the heels of news that the European Union is close to banning the export of bluefin tuna as well, with France being the latest member to join in the calls for a ban, as long as there's a two-season transition for their fishing industry to adjust. Stocks of Atlantic bluefin are down 80% over the last century, so there's a lot of evidence to suggest the species has been hunted to near extinction. So go ahead, enjoy your last tuna roll, because it really may be the last one you'll enjoy.

European Companies Revitalize Plants to Save Jobs - NYTimes.com

Americans tend to view their economy as nimbler and more able to respond to external shocks than Europe's. Europe has forged a different path, preferring to pour investment into large companies so that they can provide employment for greater numbers of people. The result in this recession has been a milder job loss than the U.S.

European Companies Revitalize Plants to Save Jobs - NYTimes.com