Europe’s Economy Won’t Recover Anytime Soon

By the Curmudgeon with Victor Sperandeo





Economic activity in the euro zone shrank markedly in January.  Economic surveys on Friday highlighted sharp contractions in the services industry, although manufacturing was steady. Economists surveyed believe that the Eurozone economy will not recover till most residents are vaccinated and COVID-19 lockdowns/restrictions are lifted.


Victor provides his usual hard-hitting comments and opines that Europe’s economy won’t recover until there’s a major change in governance.  That’s because Brussel’s dodgy bureaucracy (now in place) guarantees subpar economic growth as far as the eye can see.


Weak Eurozone Economic Numbers:



Note 1.  The flash IHS Markit Composite Purchasing Managers' Index (PMI) provides an early estimate of current private sector business activity by combining information obtained from surveys of the manufacturing and service sectors of the economy. The flash data are released around ten days ahead of the final report and are typically based upon around 75-85 percent of the full survey sample. Results covering a range of variables including manufacturing output, employment, new orders, backlogs, and prices are synthesized into a single index which can range between zero and 100.


A reading above (below) 50 signals rising (falling) activity versus the previous month and the closer to 100 (zero) the faster is activity growing (contracting). The report also contains flash estimates of the manufacturing and services PMIs.  This IHS Markit survey uses a representative sample of around 5,000 manufacturing and services companies, the former including Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland and Greece and the latter Germany, France, Italy, Spain, and the Republic of Ireland.


Germany’s economy narrowly managed to sustain its expansion, with its PMI coming in at 50.8 (anything above 50 indicates growth).  Activity in Germany’s services sector shrank for a fourth month in a row as a hard lockdown shuttered most non-essential businesses in Europe’s biggest economy. Despite slowing to a four-month low, manufacturing remained in expansion territory as exports kept German factories busy.


The PMI in France slipped to 47.0, better than the rest of the eurozone which decreased to 44.7.  With hotels and restaurants closed, France’s service sector bore the brunt of national coronavirus restrictions and overall activity there shrank more than expected.


With Europe returning to lockdowns in the fourth quarter of 2020 and extending into this year, economic growth will be lackluster at best in the first half of 2021.  See Outlook section below for economist’s opinions.


Eurozone Monetary Policy:


The European Central Bank (ECB) held interest rates unchanged on Thursday, as expected. The ECB said it would maintain the eurozone’s headline interest rate at 0% and the deposit rate at -0.5%. Economists had expected policymakers to maintain rates at their current levels.  The central bank for the Eurozone maintained its bond buying program and continues to offer cheap credit to banks to encourage lending. The “free money” programs were extended and expanded at the ECB’s last policy meeting in December. 


ECB President Christine Lagarde said risks were “tilted to the downside but less pronounced” than at the governing council’s last meeting, due to the start of COVID-19 vaccine rollouts around the world and the resolution of Brexit.


“The central bank is resting on its laurels following the boost to stimulus last month, with the statement broadly reiterating the steps it took last month,” said Claus Vistesen, Pantheon Macroeconomics’ chief eurozone economist.


While the ECB decided to stand pat this month, the governing council’s statement indicated it would not hesitate to deploy additional stimulus in future if needed.  Here’s a snapshot of that statement:


The Governing Council will continue the purchases under the pandemic emergency purchase programme (PEPP) with a total envelope of €1,850 billion. The Governing Council will conduct net asset purchases under the PEPP until at least the end of March 2022 and, in any case, until it judges that the coronavirus crisis phase is over. The purchases under the PEPP will be conducted to preserve favourable financing conditions over the pandemic period. If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full. Equally, the envelope can be recalibrated if required to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.


The Governing Council will continue to reinvest the principal payments from maturing securities purchased under the PEPP until at least the end of 2023. In any case, the future roll-off of the PEPP portfolio will be managed to avoid interference with the appropriate monetary policy stance.


Third, net purchases under the asset purchase programme (APP) will continue at a monthly pace of €20 billion. The Governing Council continues to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it starts raising the key ECB interest rates.


The Governing Council also intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation. 


All of that despite a history of global central bank QE FAILING MISERABLY in its goal to increase economic growth!  As Curmudgeon readers know for years, it has only caused mega-bubbles in global financial markets, along with more speculative assets like Bitcoin and other crypto-currencies.  We frankly don’t understand the ECB’s mentality.  Do you???


The Outlook for Europe’s Economy:


“The outlook hinges on the pace of the so-far slow vaccine rollout; more delays will only postpone the recovery,” said Jessica Hinds at Capital Economics.


“High infection rates are again forcing governments to extend and tighten containment measures,” said Tomas Dvorak at Oxford Economics. “The flash PMIs point to a looming contraction in euro zone GDP in Q1. We don’t expect any meaningful economic recovery before the pandemic is brought under control,” he added.


“With lockdowns now extended into February and more aggressive variants of the virus increasing the risk of further extensions being necessary, expect this pattern to continue. Manufacturing growth moderating and a sharp contraction in services will lead to a first quarter contraction in GDP. A bleak start to a year which should, at some point, see a quick turnaround in economic output as vaccinations take hold,” Robert Colijn, Eurozone senior economist at ING stated.


“A double-dip recession for the eurozone economy is looking increasingly inevitable as tighter COVID19 restrictions took a further toll on businesses in January. […] Some encouragement comes from the downturn being less severe than in the spring of last year [and from] signs that companies and households are finding ways to adapt behavior to the pandemic and its associated restrictions. […] The survey data therefore add to the view that the eurozone will see a soft start to 2021, but that the economy should pick up momentum again as the vaccine roll out gathers pace,” said Chris Williamson, chief business economist at IHS Markit.



Victor – No Predictions Necessary for the Eurozone Economy:


The European Union (EU) will ALWAYS be in a “low growth” economy, bordering on recession.  Why?  Because its system has evolved into an Authoritarian Oligopoly of Undemocratic (non-elected) appointed bureaucrats that has a business model like an extortion racket.  It bleeds the life out of the economy through taxes and then flows those taxes to the rulers and their owners.  The rulers are the political class; the owners are the multinationals and the wealthy families belonging to the Council on Foreign Relations (CFR) or other globalist organizations.


The bureaucrats in Brussels have grown to the size of three army brigades.  They are all appointed and paid handsomely.  The median income in Europe was 20,303 Euros per year in 2019.  That’s about $23,000 using that year’s average Euro/US $ exchange rate. 

However, the high-level EU bureaucrats (who rule by appointment) make 15 times that amount. 


For example, Jean-Claude Juncker, who was President of the European Commission from 2014-2019, had a salary of £245,629 plus a residential allowance of £36,844 and a monthly expense allowance of £1,135. Pension of £52,500 for life from age 65.  (This EU ruler made Dean Martin look like a teetotaler. He was drunk most of the time!) 


The most expensive EU official named on the “Rich list” was Vassilios Skouris, who was the president of the Luxembourg-based “EU Court of Justice”  until last October His basic salary was £241,460. Once his annual benefits and the cost of his pension were totted up, the report estimated that his- annual cost- to EU taxpayers was around £402,020 (or $546,000).


Second on the Rich list was José L. Da Cruz Vilaça, a judge in the Court of Justice. His basic salary was £196,843 but adding annual benefits and pension contributions to the total took the figure to around £360,350. The top six on the rich list are all judges who serve in the Court of Justice, the European General Court or the EU Civil Service Tribunal.


Compare the above referenced EU official’s compensation to that of UK Prime Minister Boris Johnson, who earns a salary 79,286 Pounds or $110,000.  Is that something of a disconnect?


The EU spends around 6% of its annual budget on staff, administration and maintenance of its buildings. The bloated EU bureaucracy consists of approximately:


·       32,000 people employed by the European Commission.

·       7 500 people work in the general secretariat and in the political groups of the European Parliament. They are joined by Members of Parliament and their staff.

·       3,500 people work in the general secretariat.


Thereby, from 2016 there were 46,356 people employed across all EU institutions, agencies and bodies. That covers about 500 million people (without the UK due to Brexit occurring recently).


The point of highlighting this non-economic data is to justify my assertion that the EU economy will NOT CHANGE.  The rulers and lawmakers are like a Cosa Nostra Model from Boss to Capo [1.]  who are paid well to keep the current system afloat.  They are paid to find tax money or extortion contributions through regulations and fines that are redistributed to cronies.


Note 1.  A caporegime or capodecina, usually shortened to just a capo, is a rank used in the Mafia (both the Sicilian Mafia and Italian-American Mafia) to denote a member of the crime family who heads a "crew" of soldiers or agencies and has major social status and influence in the organization.


Victor’s Conclusions:


The above commentary is my perpetual economic assessment of the European economy.  Nothing will change unless the people of the EU force change to happen. Equity markets will move according to the ECB quantity of printing fiat currency, rather than economic growth in the Eurozone.


The more research you do, the more you will find “incredible” corruption in the EU and other western nations.  For an education in dishonesty, please read “Profiles In Corruption,” by Peter Schweitzer. You can also study the history of the Mitch McConnel and his wife Elaine Chow and her family who are owned by China. Interestingly, there is little corruption in Communist countries because if you are caught you die.


Closing Quote from ‘The Law:’


When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.  by Frederic Bastiat: 









The corollary, also from Bastiat: 


Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.




Good health, stay calm, safe, persevere under stress, and till next time….


The Curmudgeon

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional.  He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996.  He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies.  Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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