Saturday, May 8, 2010

Euro Currency - The future of European Union's currency unity

There are some discussions in some European capitals about the future of Euro, the common currency which was welcomed by many but which also brought hardships on a large number of common citizens.
Like every new phenomenon Euro has had its advantages but it also entails some major problems which probably were never thought of earlier.

After the discontentment in Greece's civil life, and the speculatory rumours running around few other countries public debt, there are some people who are already predicting the end of Euro. However the real crisis has not hit the common man as yet and the matter is still mostly a financial one. If this becomes a major political issue and things get worse, there is a potential that a few European countries may opt out of Euro - the common currency, despite remaining with the Union for other purposes. Frankly if you ask a common European they are disgusted at the heavy administration cost of EU.
If that happens it will happen in bulk which means only 8 or 9 original European Union countries will remain in EURO deal and the rest may run away.
For now the matter is still not political. Once it goes to streets things will be radical. For now it looks unlikely because most Europeans prefer to drink or dance in place of wasting time on protests. Greeks are now directly affected but it is technically very difficult to undo political accords in modern Europe due to over dependence.

I do not think that there will be any default by any European country in near future. This is a test of European Economic Community or Union and this crisis would have resolved long ago if German executives in Berlin would not have waited for the elections. This selfish interest of Germans have been the cause of this crisis to become a critical one.

The chances that any North West European nation defaults on their debt is highly unlikely but even if that happens there would be solutions.
This is the ultimate test of the bureaucracy that surrounds the EU machinery. Something is not very right currently because when the economic times are bit testing, we come to know who is our real friend. This is something being discussed right now in Roma, Dublin, Madrid, Lisboa and Athens.

Belgium, the Netherlands, [BENELUX] France, Germany are the primary beneficiaries of the European union on economic front more than any other nation. Perhaps we can count here Italy.
While EU offers good political and practical solutions the excessive and expensive bureaucratic mountain that has amassed lately will eventually crumble the Union. I think if there is no immediate solution is found and the matter goes to public and streets there will be a few mini revolutions and we will have national currencies back with Lira, Peseta and Drachma.

From what I know this crisis could be resolved within next 2 months by 20th of July. I am more worried about the bigger crisis that may be more critical than this one, that is potentially cooking up in Asia.

Tuesday, May 4, 2010

Under-estimating the power of Spanish Economy is a mistake, Spanish market will be hot once again

Spain is one of the 10 largest major economies of the world with not only one of the largest tourism industries of Europe and the world but it is a diversified industrial nation and a major exporter/importer. We can not compare it to Greece.

Spain is a powerful nation and will manage its debt and economy better than any European nation. Spanish banks are some of the most conservative and profitably run banks of the world.Spain is one of the European nations with a large young population and its unemployment problems originated after its entry into the European Economic Community [EEC] which later became the European Union. Spanish unemployment numbers have always been very high but its merely a number. The real Spanish Economy is pretty strong. Being heavily dependent on incoming tourism, most of the times over half of the people who make a living in tourism industry are not counted as full fledge employed. It is not the only critical factor to assess the vast Industrial complex of Spain.

All these comments are merely gossip and nonsense based on unreliable facts.
The viral media hype about Euro-debt is bigger than the real reality and shows that most of these exxagerated comments come from those who do not know the realities of Modern European economies.
After having lived and managed in Spain and Europe for long time to know it well I still get surprised at the typical Anglo-saxon bias against Spain. Spain has been a star economy and it generated lot of jealousy.

I think Spain's entry into the EU in 1986 was a big mistake. It literally sold itself to Germans and let its industry be folded or ruined. Despite the mistakes done in so called Europeanization of Spain and so called Upgrades to its infrastracture, Spain has managed to survive as a healthy young nation.

Spain will succeed in managing its financials in very near future.
By the way the problem of high unemployment in Spain is 25 years old and it is not a major factor in current problems. I think some people are exxagerating and over stating certain things.

Spain is not comparable to Greece or Portugal. Its economy, life and financials are many times better than the one of the UK and the USA. It will come out of the current Euro debt crisis with flying colors and it will be once again the hot market for years to come.

Spanish Economy

The Spanish economy was credited for having avoided the virtual zero growth rate of some of its largest partners in the EU (namely France, German and Italy) in the late 90's and at the beginning of the 21st century in a process which started with former Prime Minister Aznar's recommenced liberalization and deregulation reforms aimed at reducing the state's role in the economy. In 1995, the country began an impressive economic cycle marked by strong economic growth, with figures at or above 3%. In 2008, however, the bursting of the housing bubble resulted in a severe recession that greatly outstripped successive government predictions.

Growth in the decade prior to 2008 steadily diminished the per capita economic gap between Spain and the largest economies in the EU. By the end of this economic cycle, Spain's per capita position had overtaken Italy's and was streadily approaching that of France.

During this time the Spanish economy was regarded as one of the most dynamic within the EU, even able to replace the leading role of much larger economies like the ones of France and Germany, thus subsequently attracting significant amounts of native and foreign investment. Also, during the period spanning from the mid 1980s through the mid 2000s, Spain was second only to France in being the most successful OECD country in terms of reducing income inequality over this period.
Due to its own economic development and the recent EU enlargements up to 27 members (2007), Spain as a whole exceeded (105%) the average of the EU GDP in 2006 placing it ahead of Italy (103% for 2006).
In July 2009, the IMF worsened the estimates for Spain's 2009 contraction, to minus 4% of GDP for the year (close to the European average of minus 4.6%), besides, it estimated a further 0.8% contraction of the Spanish economy for 2010, the worst prospect amid advanced economies.

In 2007 the total Spanish public debt (government debt) relative to the total GDP was well below the European Union average, and in fact the government budget was running on a slight fiscal surplus, but the financial situation has since rapidly deteriorated. From late 2008 the public debt relative to GDP began to climb steeply, reaching almost the same percentage level as the UK's, although still well below Greece's level, at the beginning of 2010. Because of the severity of Spain's economic crisis, annual government deficits are expected to remain high and will continue to add heavily to the public debt over the next few years, as an expected slow recovery holds down tax receipts while welfare and other recession related expenses remain high.

The Spanish banking system has been credited as one of the most solid and best of all western banking systems to cope with the ongoing worldwide liquidity crisis, thanks to the country's conservative banking rules and practices. Banks are required to have high capital provisions and to demand various guarantees and securities from intending borrowers. This has allowed the banks, particularly the geographically and industrially diversified large banks like BBVA and Santander, to weather the real estate deflation better than expected. Indeed, these banks have been able to capitalise on their strong position to buy up distressed banking assets elsewhere in Europe and in the United States.

Ever since the 1990s some Spanish companies have gained multinational status, often, but not only, expanding their activities in culturally close Latin America, where Spain is the second biggest foreign investor after the United States.

Spanish companies lead fields like renewable energy (Iberdrola is the world's largest renewable energy operator and infrastructure, with six of the ten biggest international construction firms specialising in transport being Spanish, like Ferrovial, Acciona, ACS, OHL or FCC.

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