Having wandered past “You couldn’t make this up” a number of years ago it has been difficult to watch as the Eurozone continues to fumble onward, un-reformed while millions of its putative citizens suffer not only unemployment but almost no realistic possibility of a better future.
Indeed we have come to a point where the absurdity has become so great that an April Fool article has been posted in the Greek press that Greece may consider Bitcoin, the digital currency, in place of the Euro. Indeed the Greek position remains a real conundrum, with Varoufakis being the first finance minister to rail against the obvious madness of European economic policy, before stifling his negotiating room by a public commitment to the Euro for noble but shortsighted reasons. This left the Smurfs apparatchiks in Brussels and Frankfurt to play hardball, rather than accept they are at the heart of one of the worlds largest economic delusions.
But let’s not worry about such trifles, Eurozone QE is here and that will make it all better. Well, it’s made it all something, with a significant portion of Eurozone debt now producing negative interest rates:
Click/Tap to enlarge
So as well as Germany and the Netherlands you can now get a negative yield on France, Italy and Belgium, a country that looked like it might cease to exist a couple of years ago. In terms of Risk/Reward this looks..errr…exciting?
Now to be absolutely fair with the Euro falling on the back of QE there has been an uptick in economic activity, reflected in that old favourite, the Purchasing Managers Index (PMI), largely regarded as one of the most reliable leading indicators:
Click/Tap to enlarge
Remember anything above the 50 level indicates expansion. In the past the weight of Germany alone (which constitutes 30% of the EZ economy) has been enough to distort these figures to paint an unrealistically positive figure, although this time Spain and Italy have both made useful contributions. This is of some relief, although the numbers involved are feeble against the downturn these countries have experienced.
France however, a country that has THREE QUARTERS OF A TRILLION EUROS worth of DEBT paying NEGATIVE INTEREST RATES came in with a feeble 48.8……and the bulls celebrated as it was less bad than it might have been, with the French market up 0.5% on the day as I write.
Worse still across the continent equity markets push on ever higher, driving up company valuations ever further, I assume in the hope that finally the Earnings part of the PER will catch up with the P part, although as the following JPMorgan chart shows (dated to the end of December 2014, before the latest mad rally) earnings have been disappointing for, well, a while now:
Source: JPMorgan Click/Tap to enlarge
While this world zero/negative interest rates has been marvelous for bank lending across Europe…oh no that’s wrong isn’t it?:
Source: JPMorgan Click/Tap to enlarge
And all the while in the bottom right hand corner of the continent a nation effectively wilts, while Eurocrat apparatchiks harp on self righteously about good and moral behavior, when even the IMF acknowledges the previous Greek rescue packages were about saving irresponsible German and French banks and not the Greek economy or its population.
I don’t agree with UKIP’s approach of the UK turning its back on the EU but the current theatre of the absurd has reached a point where rational analysis is increasingly painful to the point of upsetting. Whatever trigger it is that finally dissolves the Corrosive Equilibrium watching the consequences across Europe could be memorable in a very wrong way if it doesn’t change course soon.