Here are the facts about the so called “Eurozone Crisis” On April 27th, Greek sovereign debt was downgraded to “junk” status as credit rating agencies feared that deficits were out of control. This led to a massive sell-off of Greek debt as many pension funds, banks and other institutional investors are not allowed to own poorly rated bonds. This set off fears that rating downgrades would come fast and furious for other European countries whose deficits are similar to Greece, namely, Portugal, Ireland, Italy and Spain. On May 11th, EU Finance Ministers announced a massive $1 trillion Euro bailout to transfer public funds to creditors of deeply indebted European countries. The reason is simple, as downgrades continue, banks will be forced to liquidate their holdings of Euro debt at fire-sale prices. In the meantime, banks may start to worry which of their lending partners have toxic Euro debt on their balance sheets which could lead them to stop lending to each other. We’ve already been through one credit crisis thank you very much.
The bailout combined with austerity measures and the global recovery, provides indebted countries time to get their balance sheets in order. Each day we receive more data points that confirm the healing process is taking hold. Here are few tidbits out of Europe.
Spain – The number of people filing jobless claims in Spain dropped for a second straight month in May, the largest drop in five years. Jobless claims registered a 1.84% fall in May — 76,223 less than the previous month — for a total of 4.07 million.
Germany – German unemployment fell more than twice as much as economists forecast in May as exports from Europe’s biggest economy surged, bolstering the recovery. The number of people out of work declined a seasonally adjusted 45,000 to 3.25 million, the lowest since December 2008, “The labor market seems to turn much earlier than many had thought,” Carsten Brzeski, an economist at ING Group in Brussels, said in a note to investors. “It should only be a matter of a few months before the unemployment rate returns to its pre-crisis level.” German exports surged 10.7 percent in March, the most in 18 years, and Factory orders rose 5 percent, more than three times economists’ forecast.