Thursday, 24 October 2013

Greek devastation and Europes lost decade

The Telegraph's Ambrose is impressively dismal on Europe's economic outlook.

Conspiracy economic blog likes nothing better than a thoroughly bleak story on the future of the world economy but it is better when there is a solid underpinning in fact.  This time the story comes from the UK right-wing paper the Daily Telegraph.

What is impressive is that Ambrose manages to take a fairly innocuous looking report from Citi bank and spinning a "Europe's lost decade" story out of it.  Nice work.  My bold.

Having said that, if Citi bank state that unemployment will rise to 32% and debt to 201% of GDP maybe he has a point.

Citi forecasts Greek devastation, unstoppable debt spirals in Italy and Portugal [Telegraph]

  [...]

If Citigroup is broadly correct, Europe faces a lost decade that is far worse than anything suffered by Japan, which will render the region marginal in coming world affairs, and is likely to have non-linear political consequences. The lesson of the 1930s is that you have to discredit both the moderate Left and Right in turn before voters turn to extreme parties en masse.

I cannot see how perma-slump and rising unemployment can continue through to 2017 without patience snapping. But such judgements are entirely political, and therefore intuitive. You have to speak the languages of these countries and know them very well to have any useful insights.

Citi's team is headed by ardent euro-federalist Willem Buiter, and most of his team are from eurozone countries, so this is not an Anglo-Saxon report.

Of course, there is always the possibility that they are completely wrong. They had better be wrong.

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