4

Weak GDP growth forecasts, recently released by the IMF, suggest probabilities are significant that one or more Eurozone countries could slip back into recession in 2015.

  • What isn't made clear in that article? Anyway a rising US$ would help Germany most, but Germany isn't the one most in need of help – user45891 Oct 9 '14 at 19:09
  • A strong US dollar is not always good. It is a sign that the market is confident and that the economy is going better but at the same time, exportations are going down. – Vincent Oct 9 '14 at 20:27
  • I have an opinion rather than real answer. Strong or Weak USD wouldn't affect European economy on long run. Two strategic reasons. The CHN-EUR direct trade is established few months ago, so Europe won't have to use USD in international trade with China. Secondly that effect would urge the oil de-dollarization, which is slowly happening, and Europe is a big business. – CsBalazsHungary Nov 10 '14 at 16:01
  • @Vincent But wouldn't (US) exports going down be good for Europe? – Relaxed Dec 10 '14 at 17:12
1

No, and for several reasons.

  1. To profit from a strong dollar, you have to export more than you import in that currency. Those countries are in trouble because they consume (=import) much, but literally don't produce (=export) anything of significant value

  2. Many of those countries will have debts denominated in US-$. In that case, a strong dollar is going to make matters worse, not better.

  3. Even if that would help those countries, if would just mean that the economic situation in the US would get proportionally worse, eventually prompting an intervention of the Federal Reserve.

  4. If the problem causing the economic difficulties is

    • widespread unemployment
    • due a lack of economic activity caused by
    • a lack of investment and confidence
    • due to poor rule of law, despotic property rights, corruption, nepotism,
    • record-level state-personnel headcount with unreasonable salaries financed by debt,
    • neo-feudalistic property and tax structures in general,
    • and a corresponding overregulated job market
    • with strong and corrupt trade unions
    • and correspondingly insane retirement regulations & benefits,
    • and a corresponding non-sustainable debt level
    • denominated in foreign currency (or non-inflationary Euros),
    • and a corrupt police force and jurisprudence system
    • controlled by governments with questionable "democratic" background,

the minuscule increase of exports due to a strong dollar will simply not be strong enough to compensate for that.

The only thing that could solve those woes is a purge of the government and legal system (including police and military forces) of those mafious elements, like Mikhail Saakashvili attempted in Georgia. But in that countries, that's not going to happen, ever, because the mafia is the government (or vice-versa).

The problem is the same everywhere - really.
Spain, Italy, Greece, Portugal, to some extent even France.

The sad part is, you know how dire the situation is when three or four years ago, you overheard people say "I'd rather invest in the Ukraine than in France/Italy, because the risks are equally high but at least the Ukraine has growth potential"...

| improve this answer | |
  • 2
    if those bullet points are quoted from somewhere please provide the source – user4012 Oct 13 '14 at 19:08
  • 2
    (-1) To use a technical term, that's mostly BS. Just to name one thing that's obviously wrong, the last point does not line up with the fact that Spain or Ireland were doing just fine budget or unemployment-wise and were even hailed as role-models for modernization in some circles prior to the crisis (Greece is arguably different but it's small and not really representative of Europe woes as a whole). The bubbles and the unbalances in the euro zones were of course lurking in the background but debt or deficit did not cause anything, they resulted from the crisis… – Relaxed Oct 15 '14 at 5:55
  • 1
    Also, can you produce any evidence that Spain, Italy or France have significant amounts of debt denominated in USD? – Relaxed Oct 15 '14 at 6:01
  • @Relaxed: No, the crisis resulted from the debt, not the debt from the crisis. They had too much debt, and when the financial situation worsens somewhere else (aka when the USA needs money to finance the monetary black-hole known as Iraq war), interest rates go up, consequently confidence (and, and the respective credit rating) that outstanding credits can be payed back goes down - interest rates consequently rise even more - public spending needs to be reduced - kaboom, the implosion spiral begins... – Quandary Nov 18 '14 at 0:34
  • @relaxed: External Debt in France increased to 5'830'781.91 USD Million in the second quarter of 2014 from 5'743'434.65 USD Million in the first quarter of 2014. External Debt in France averaged 4'308'754.23 USD Million from 2002 until 2014, reaching an all time high of 5'830'781.91 USD Million in the second quarter of 2014 and a record low of 1'726'658.38 USD Million in the fourth quarter of 2002. External Debt in France is reported by the World Bank. – Quandary Nov 18 '14 at 0:39

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .