Home » Currency War » The Eurozone’s Really Bad 2014, In Two Charts

The Eurozone’s Really Bad 2014, In Two Charts

by John Rubino on January 14, 2014 · 36 comments

Headline writers have found some brutal things to say about the eurozone lately. To take just a few of the dozens of possible examples:

France Collective Depression

48.6% of Spaniards Aged 18-24 Would Take Any Job, Anywhere, for Low Wages

Greek industrial slump persists, jobless rate at record high

Opposition Dissent Tempers Greek Attempts at Optimism

Despair in Italy as unemployment numbers rise again

Finland faces ‘historic’ challenges amid eurozone recovery

It goes on and on, through youth unemployment and political turmoil and every other kind of malaise short of major war. Meanwhile, the news in most of the rest of the world is, if not great, at least not horrendous. Here in the US headlines containing “despair” or “depression” are limited to pharmaceutical ads. And Japan, with its low interest rates and positive growth, seems to think it’s recovering (you have to admire their ability to compartmentalize, what with a nuclear plant melting down right in the middle of the country).

So why is the eurozone regressing when the rest of the world is (or thinks it is) recovering? The answer is straight out of the currency war script: The US and Japan have been monetizing the hell out of their debt, weakening their currencies against the euro, and generally giving themselves a trade advantage. They enjoy a temporary recovery while the suddenly too-strong euro pushes the eurozone into a financial black hole. The following charts appeared today in a post by money manager Axel Merk. The first shows the balance sheets of the major central banks since 2008. Notice how the Bank of England, the Swiss National Bank (two non-euro European countries), and of course the US Fed have been steadily accumulating assets by buying up bonds with newly-created money. This lowers the value of their currencies and pumps cash into their banks, which results, other things being equal, in faster growth.

Central bank balance sheets 2013

The next chart, showing the big four central bank balance sheets over the past year, is an even more dramatic picture of differing currency war strategies. Looking at this chart, an observer might expect the two entities with the fastest balance sheet growth to have weaker currencies and stronger economies, and the observer would be right.

Central bank balance sheets one year 2013

So what does this mean going forward? Clearly, the eurozone is looking at a horrible 2014 that leads its elected officials – whether incumbents trying to salvage their jobs or newcomers elected to restore growth – to force the European Central Bank to ease big-time. Like the Bank of Japan in 2013, the ECB will have no choice but to give up the pretense of independence and do what its constituent countries demand. Already, ECB governor Mario Draghi is laying the groundwork for capitulation:

Draghi Says ECB Will Act If Needed

FRANKFURT—The European Central Bank surprised markets with an emphatic assurance that it would respond aggressively if inflation weakens to dangerously low levels, as officials sought to spur the fragile euro-zone recovery.

President Mario Draghi’s pledge Thursday to deploy “further decisive action” if needed to counter threats stands in contrast to the Federal Reserve, which deployed its stimulus measures sooner and is now slowly winding them down amid signs of more robust U.S. growth.

It also reflects Europe’s grim economic prospects—among the weakest in the industrialized world—which weigh on its global trading partners as well.

Growth returned in Europe last spring, but just barely, after a lengthy recession that pushed unemployment rates above 25% in parts of southern Europe. Annual inflation is far below the bank’s target. Some analysts warn of a “lost decade” that will rob future generations of opportunities for higher living standards.

Governments in France, Italy and elsewhere have been unable to combat this economic malaise, leaving the ECB widely seen as the only institution with the firepower to keep Europe from following Japan’s path of falling prices, stagnant activity and mounting debt.

So when analysts update their central bank balance sheet charts a year from now, it’s a very safe bet that the biggest change will be a sharp upturn in the ECB asset line. The euro will be weakening, US and Japanese exporters will be screaming, and Washington and Tokyo will be plotting their response.

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  • Digby Green

    Or maybe somone exposes the Fed and the BOE and the Swiss for what they are, and they lose their jobs and start “uprinting money”

    • http://PeterPalms.com/banking Peter Palms

      Their are 2 possibilities abolition of the World’s central banks.before collapse and repurchase of all Federal reserve Notes with a new real dollar, or collapse and default of dollar and new currency issued by World bank to a New World order

      • David Green

        called bitcoin

        • MacFly1

          Probably not although it could be a part of the “basket of currencies.”

      • MacFly1

        Definitely #2.

      • retired22

        It was tried 51 years ago with executive order # 11110 with silver certificates printed by the Treasury Dept.Kennedy was murdered that fall in Dallas!
        PS That order was never repealed,it is still legally in effect!

  • Perplexed

    Can’t be that bad there’s hardly any news of people in despair.

    • http://PeterPalms.com/banking Peter Palms

      People in dispair cannot report their dispair

      1. Almost half the world — over 3 billion people — live on
      less than $2.50 a day.

      2. The GDP (Gross
      Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million
      people) is less than the wealth of the world’s 7 richest people combined.

      3. The Fed and Extreme Capitalism cannot be sustained, even
      by the rulers.

      4. Nearly a billion people entered the 21st century unable
      to read a book or sign their names.

      5. Less than one per cent of what the world spent every year
      on weapons was needed to put every child into school by the year 2000 and yet
      it didn’t happen.

      6. One billion
      children live in poverty (1 in 2 children in the world). 640 million live
      without adequate shelter, 400 million have no access to safe water, 270 million
      have no access to health services. 10.6 million died in 2003 before they
      reached the age of 5 (or roughly 29,000 children per day).

      7. 8.7% of the population of the planet now owns more than
      57% of the entire planet

      8. Some existing frameworks cannot be fixed. That would be
      an oxymoron.

      • Bruce C

        I don’t have a lot of sympathy for people who live in dire circumstances and then choose to have children any way. Animals have better sense and will even kill their young if they sense their environment cannot support a certain level of value fulfillment. I’m sorry for the childrens’ suffering, but that’s on the “parents” not the rest of the world.

        • PaperIsPoverty

          Yeah, we should long for ancient times when infanticide was the primary means of birth control.

          Many women in the developing world don’t have access to contraceptives, and may have no control over their sexuality whatsoever (e.g. in some Muslim countries), not to mention the routine use of rape in violent conflicts. You should be careful with the word “choose”.

          And I don’t know why a lack of white skin makes parents into “parents”. I’m not sure why you commented when you had nothing to express except contempt for the least among us.

          • Bruce C

            I don’t feel contempt for the least among us, I feel contempt for the generalized belief that the most moral use of money is helping “the poor” and that the expenditure of money is even capable of helping or is the best way to do so.

            And, my use of “parents” has nothing to do with skin color but rather to those who biologically procreate but otherwise lack the resources to raise their children responsibly or even at all.

            I know its popular to think that so many people in the world are dysfunctional for one reason or another – because of their environment, cultural beliefs, lack of knowledge and education, contraceptives, etc. – but that itself is an elitist point of view. Many “miserable” people somehow seem happy enough when one actually meets them and they live lives that more or less work for them, and they often actually resent do-gooders who try to “improve” things and impose new standards and values on them.

            Interestingly, just in the last 24 hours or so I heard an interview with Bill Gate’s about his success in lifting the world out of poverty (mixed results at best, but at least “things are noticeably better in most countries than they were 40 years ago,”); the latest recognition that LBJ’s “War on Poverty” has definitely failed despite spending over $20 trillion since the early 1960’s; that Marco Rubio says LBJ’s program has been a particular failure in Florida since nearly 1 in 4 are living in poverty compared to the national average of over 1 in 6; and an interview with an ex-hedge fund manager who claims he, like most people he knew, were addicted to money and was driven by the feeling that he didn’t have enough, compared to the millions who really don’t.

          • PaperIsPoverty

            I understand that you were saying rich people have children but poor people breed like animals, but the rich/poor division winds up also being a skin color distinction when discussing the poorest nations vs. the wealthiest ones, as in the original comment you were replying to.

            Your thoughts above seem internally inconsistent. On the one hand people living in very impoverished conditions are “happy enough when one actually meets them and… live lives that more or less work for them,” on the other hand they are irresponsible if they have children and can only be called “parents” in quotation marks.

            That birth and infant mortality rates are affected by culture, economics, education, access to health care, and so on is not elitism, it is statistical fact. Turns out — you may find this interesting — there is an entire field of study devoted to such correlations, known as public health.

            Many developing nations are basket cases because of the legacy of colonization, thus on moral grounds it would be sensible for the wealthiest countries to attempt to make amends. But we don’t attempt that. Aid to developing nations is never about assisting the poor and is always about geopolitics. Nor does the Gates Foundation have much interest in helping the poor.

            There are small, private companies who have made improvements in people’s lives using simple methods, e.g. setting up local factories to make treadle-operated water pumps for irrigation of small farms, along with a micro-financing system so that farmers could afford them. That particular company is credited with increasing the GDP of Kenya. There are numerous other basic ideas (e.g. for water transport or cooking fuel efficiency) which actually do help those in poverty, but institutional monetary aid from the West does not have that goal. Arguing about whether it works is therefore irrelevant.

          • Bruce C

            My main point, which has nothing to do with income or skin color, is that all humans are fully capable of making the most basic assessments of their circumstances and decisions about their lives. Even if one holds the most preposterous ideas one knows the mental environment in which one is operating and, therefore, the consequences of any decisions made within that framework.

            The only way people (like me) have any idea of what other people think from other cultures is because they tell us/me, which means they know themselves. This victimization crap has got to go.

            Yes, people can have lives – belief-experiences – that are very different than mine and that I may not like personally, but if they like them so be it. And, yes, I think it is irresponsible to have children in an environment that has barely potable water or barely enough food to sustain even the “parents”. That’s just common sense. The notion that people can’t think clearly because of colonization or whatever is ridiculous. It’s not that complicated.

            I/you/we are so used to seeing/reading such graphic, sensationalized depictions of life in some of the most impoverished areas that it seems like life there is a 24/7 5-alarm emergency and yet those areas somehow literally grow with time. There are more “poor” people today than ever before, and the percentages may even be higher than ever. Maybe all that aid has “helped” it, just like in the US.

            You get what you concentrate upon.

          • PaperIsPoverty

            No, not all humans are fully capable of making decisions about their lives. We come back to my original point.

            When women have more education, more resources / money, better access to health care, and more freedom in marriage, birth rates are lower. This begs a rather obvious question: Why would women in the worst circumstances “choose” to have the most children? Do you honestly believe women do not care about seeing their children go hungry? If you do, you have an amazing ability to dehumanize others. If not, you will have to admit that they have inadequate control over pregnancy.

            As for colonization: violently redrawing national boundaries and redefining economies in ways that make no local sense, then withdrawing to leave a power vacuum, is a sure way to hamper governance for decades to come. But I never implied it affected individuals’ ability to think, I was speaking of higher level politics.

            Further impoverishing the third world through neo-colonialism (e.g. IMF loans) and global corporatism (e.g. GMOs) will only result in a higher birth rate, not a lower one. And yet you would take the increased population as a sign that none of us should empathize with the affected populations, that their suffering is merely a ruse. I don’t know what to call that except sheer ignorance.

          • Bruce C

            “not all humans are fully capable of making decisions about their lives, …”. A lot of Statists agree with you too, which is at least the official basis for their political agendas.

            Okay, let’s take your own question, “Why would women in the worst circumstances “choose” to have the most children?”

            Based upon, say, Bill and Malinda Gates explanation, that usually depends upon the culture they are in, but generally it has to do with the belief that having more kids assures the survival of at least one of them to adulthood. What the Gates’ try to do is explain to them that by having a fewer number of kids but taking better care of each one is actually the more effective/easier/better strategy.

            They would add that in, say, Africa the husbands would need to be convinced the most of this whereas in India the Mother in Law of the married couple is in charge of family planning. I’m sure all the nuances of these beliefs systems make some sense and are rational and consistent within their own frameworks, so it’s not like people lacking “education” are just unhinged and flailing. And, again, it’s not like these belief systems don’t work for them. They do, but just not the way some people would like them to.

          • pipefit9

            Good lively debate, fellows. Not to sound like a smarty pants, but I think both of you are missing the most important reason for the mess the 3rd world folks are in. When the world’s reserve currency, the dollar, and principal ancillary reserve currencies, Yen, Yuan, and Euro, are all created by fiat, you have a situation where wealth is constantly being sucked out of poor countries.

            They grow bananas and we give them pieces of paper, or the electronic equivalent. Theoretically, they can use those stacks of paper to buy crude oil or anything else. The problem is that the further you get from the printing press, the more you become the helpless VICTIM of the effects of the hyper inflation of the money supply.

            Note that us white folks in the USA are victims of this same ‘paper for goods’ scam. However, since we are positioned a bit closer to the printing press, it is not quite as detrimental to our pocketbooks.

            What I find most amazing is that this close to the end game we still don’t know exactly how it will play out. I don’t buy the ‘it always end with war’ argument. Modern anti-ship weapons, to say nothing of nukes, probably rule that out. Regardless of where one is located, we’re all gonna get quite a few paper cuts from the falling house of cards.

          • PaperIsPoverty

            Pipefit9, that’s a good point.

            Bruce, I wasn’t clear enough in what I wrote and we’re having a misunderstanding. When I say they’re not fully capable of making these decisions this is in no way a judgment of their abilities. I certainly do not share the statist view that we’re all too stupid to run our own lives. What I’m talking about is a literal lack of choice. If the husband wants more children in some cultures then the wife has no choice. Or to use your example, if the mother-in-law in some Indian families thinks the couple should have more children, the woman has no choice.

            In poor areas most families are farmers, and having more children means more workers on the farm, each of which can (in good times) produce more food than they consume, resulting in a net economic positive to the family for each child. The problem is that drought, war, GMOs, and political uncertainties can interrupt this farming, and then each child becomes a sudden economic negative.

            As for Bill and Melinda Gates’ theory, now *that* is the most elitist thing I’ve ever heard of, implying that parents are both inhumanly uncaring about their own children and just plain stupid.

      • retired22

        When enough people starve it will mean revolution & war.Starving people are desperate & have nothing to lose!

      • John

        There is only one solution and it’s blatantly obvious. 6 Billion people need to go.

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  • pipefit9

    When a government wants to spend more than they receive in revenue, they have various mechanisms for doing so. They can borrow money by selling Treasury Bonds. Another method is to under fund old age retirement and health care plans. The latter is the preferred course of action in the USA. So extreme is this under funding, and the interest due on past under fundings, that if one were to use GAAP (honest) accounting, one would see that the USA ran a GAAP deficit of $6.8 trillion in the fiscal year ending 9/30/2013.

    All of this information is in the public domain. Therefore, it is no surprise that the dollar has actually UNDER performed the euro over the past year or two. Quite frankly, I don’t understand all the EU bashing. Yes, they are a mess. And so is the USA, China, Japan, and on and on. Since they are all riding on fumes, there is this appearance of normalcy, since they aren’t making that many huge currency moves versus each other.

    • http://PeterPalms.com/banking Peter Palms

      When all obligations are included to total debt of U.S. is now $223 trillion and cannot be paid. Collapse is inevitable and would be the fourth collapse. This time for the first time it will include default.

      • MacFly1


  • Bruce C

    For some reason Europe’s situation bores me but one aspect that I do find interesting is the euro itself. It’s been said that a fatal flaw of the euro concept was that it incorporated a monetary union of the member countries but not a fiscal union, meaning that there would be a euro zone central bank (the ECB) but not an officially designated centralized fiscal policy agency. To have both would have created a situation like the United States in which the member countries would lose some independence and become more like states are here. Most (none?) European countries didn’t want that.

    Now, it’s also been said that this arrangement was put forth on purpose knowing that it would be unsustainable as designed and would ultimately create conditions in which member countries would be forced to surrender their sovereignty and accept a centralized political authority. We may be observing this play out. If so, the ECB may finally begin its “Outright Monetary Transactions” (OMT, the ECB’s name for its version of Quantitative Easing) but not without a lot of political concessions from the beneficiaries of its largesse.

    • DaveZiffer

      The other fatal flaw in the Euro is simply that it is a nail in the coffin of the petrodollar, and the U.S. simply won’t tolerate that. Shortly after the creation of the Euro, Iraq started selling oil in Euros. Invading and destroying Europe was not a politically tenable option for us, so we chose the obvious alternative. In 2012 Iran stopped accepting dollars as payment for oil, preferring euros instead, and we see the chain-rattling that has been going on in the halls of Washington ever since (yes, yes of course Iran has potential future nuclear weapons maybe with which to somehow threaten us, WMD and all that). I have little doubt that Iran’s new more-compliant president (Rouhani) will be quietly changing that policy in short order if he has not done so already. But rather than continue on the warpath with all of OPEC, why not just do the next best thing and deep-six the Euro? Then of course after that we’ll have to go after the Yuan, but that’s another chapter.

      • http://PeterPalms.com/banking Peter Palms

        The U>S. cannot stop the ending of the petrodollar and the world’s petro suppliers are abandoning the petrodollar

      • MacFly1

        Saudi Arabia has threatened to end it as well. The dollar is finished. its just a matter of time.

  • http://PeterPalms.com/banking Peter Palms

    The Euro zone will collapse and thereafter the dollar was well. It is inevitable

  • oldbellevue

    Thank you John for once again adding some simple perspective to a complicated subject, the currency wars and the race to the bottom. Something not depicted in the charts is the relative weight of the various banks in a world of sloshing currencies. The Fed is still the elephant in the pool whereas Australia, Singapore, Switzerland, Sweden, Russia, and others created mere ripples when they move. Japan will die it’s own special death and as far as the Euro, those nations that still have their gold (Italy and France) will come out better than those (Germany) that don’t when and if the EU dissolves.

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  • Walther11

    It looks like the race to the bottom id fully underway.

  • popo

    Better use The Secret of Oz or other documentarys from Bill Still.Zeitgeist is promoting the New Age Movement,including Thrive.The rest is true.Central bankers aim is to create one bank and one currancy for the world.This is why the dollar will crash.But the same people behind Thrive and Zeitgeist are pushing for New age Religion which is also in the plans for the New World Order.Thrive and Zeitgeis are paid by this globalist agenda.They inform the people how they control everything and their solution is joining in their One World Religion

  • Jingogunner

    Nonsense, trustworthy Mr Draghi and kindly Mr Juncker will never allow our glorious soviet empire to fall to the evil ploys of the far right extremist bigots who seek its destruction. The UNION will triumph and be glorious in the history of mankind!

  • Benjamin Dover

    It’s a fundamental mistake to regard the impending financial collapse of the global economy as being simply about money and economics. It’s not. That’s very optimistic thinking. In a nutshell the economics of infinite growth with finite resources are catching up with us. This is a resource collapse and given our 100% dependence on finite resources it’s going to be a near extinction level event. Economic collapse is simply the first and most obvious red flag. Economists are quick to forget one important factor esp for eg. when talking about the “Great depression” (soon to be a very humorous term compared to what’s coming). Time. During the great depression the world population was a third of what it is now and we had barely made a dent in our finite resource reserves. Of course we recovered. Because resources matter, not paper or the economy or any other fanciful nonsense we dream up. Fast forward to now. Ummm, need I go any further?

  • Sticky Ricky

    LOL, reading the comments below it’s clear that most of you have no idea what is coming. That’s probably best. At least you still get to sleep at night. The economy. Ha ha.

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