“Titanic-Style Problems for Euro Zone” diagnoses Irwin Stelzer in The Wall Street Journal.
The euro zone economic sentiment, reports the European Commission, hit a 28-month high in July. Little wonder: remember the almost 16% devaluation of the euro relative to the dollar of last spring? German exports have been booming. But while retail sales in France and Germany rose in the second quarter, sales in Italy fell. And while Germany heads towards fuller employment, the unemployment rate in the euro zone as a whole hovers around 10%.
The German export machine, however, is at risk of a slowdown since markets in the periphery of Europe are shrinking, due to austerity policy, as well as Asian markets do, while the July 8% rise of the euro against the dollar adds to the downward pressure.
On top of that, Europe’s banks are in worse shape than the sponsors of the stress tests would have us to believe:
“Barclays estimates that if sovereign debt had been properly considered, 22, not the reported seven banks would have failed the tests, and that the sector needs to raise € 12.6 billion in capital, a lot more than the €3.5 billion estimated by the eurocracy.”
The punch line:
“The basic structural deficiency of the common currency area – a single currency with multiple national fiscal policies – is too often mentioned to warrant expanded treatment here. It might well constitute the largest part of the submerged portion of the iceberg towards which the good ship euroland is headed”.
Read the paper here .