Mish's Global Economic Trend Analysis

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• Social Mood Darkens in Europe, Especially France, as French Economy in Freefall
• Cameron Faces Cabinet Crisis of His Own Making; Purposely Self-Inflicted Wounds
• Paul Krugman "Was" Right

Social Mood Darkens in Europe, Especially France, as French Economy in Freefall Posted: 13 May 2013 11:20 PM PDT A PEW study on European Attitudes shows social mood is darkening in the Eurozone, but especially in France. The 78 page study "The New Sick Man of Europe: The European Union" is worth a look in entirety, but let's turn the spotlight on France. France in Free Fall The euro crisis first undermined France's economy, and now there is strong evidence that it has severely eroded French public attitudes toward the economy, the European project and the country's domestic leadership. Moreover, France has always bridged Europe's north and south. French language and culture has Latin roots, but France has historically been considered in the same economic and political league as Germany and Britain. And in their public attitudes, the French were neither Northerners nor Southerners, but a hybrid of the two. Now, measured by a number of indicators, the French look less like Germans and a lot more like the Spanish, the Italians and the Greeks. In the current poll such sentiment reaches a new low, with just 9% saying the economy is performing well. And that judgment is down 21 points since 2007. Only 11% of the French think their economy will improve over the next 12 months, making the French among the most pessimistic of Europeans. And just 9% think their children will be better off financially than their parents, by far the gloomiest forecast for the next generation. The economic downturn over the past six years has also sharply increased the portion of the French population suffering basic deprivation. And reported incidences of not having enough money to pay for food and health care over the past year have increased more in France since 2007 than in any other of the EU countries surveyed. The French have long had their doubts about whether European economic integration has been good for the French economy. In 1991, the year before creation of the single European market, a plurality of 44% feared that integration would weaken France. Today, these doubts have morphed into strong convictions. Nearly three-quarters (77%) of the French think closer business ties with the rest of Europe have undermined their overall economy. In 2004, 69% had a positive opinion about the Brussels-based institution. But by 2013, just 41% have a favorable view. Moreover, more than half (53%) of the French oppose giving more decision making power to Brussels. And only 40% would consider financial assistance to other EU nations facing economic distress, down from 53% in 2010. Nevertheless, 63% of the French want to keep the euro and not go back to the franc. Opinion Gap With Germany Widens That 33-point difference six years ago is now a 66-point difference, as just 9% of the French and 75% of Germans see their economy as good. Moreover, the French and the Germans differ so greatly over the challenges facing their economies that they look as if they live on different continents, not within a single European market. Fully 80% of the French say unemployment is a very big problem; less than a third (28%) of the Germans agree. About two-thirds (68%) of the French think inflation is a major issue, while just 31% of Germans are similarly worried about rising prices. And 71% of the French are very troubled about public debt; only 37% of the Germans share such intensity of concern. The French and the Germans also disagree on whether to help out other European Union nations in distress. And their positions have flip-flopped. In 2010, roughly half (53%) the French backed bailouts, while only 42% of Germans agreed. Today, about half (52%) of the Germans support such financial assistance, while just 40% of the French do so. French Attitudes Worsen - Look More Like Greece, Spain Italy More than nine-in-ten Spanish, Italians and Greeks think their economy is doing poorly, as do roughly nine-in-ten French. About two-thirds or more in all four countries think their governmental leader has done a bad job handling the economic crisis. Nearly three-quarters of the French, Greeks and Italians believe that economic integration has been bad for their country. More than half of the French, Spanish and Greeks look unfavorably on the EU. And by all of these indicators, French attitudes have worsened dramatically since 2007, much as has sentiment in Spain and Italy, for which there are comparable data. Support For Further Integration Wanes Leaders are still committed to the eurozone project with Brussels having still more control, but the average European citizen sure isn't. Interestingly, just 18% in France back a Keynesian solution to their woes even though socialists are in control. A pair of key charts from the report shows increasing skepticism towards further integration. People's confidence in the European Union as an institution is waning even faster. A median of only 45% now think favorably of the Brussels-based organization. That support is down 34 percentage points in Spain, 21 points in France and 20 points in Italy. For now, the majority in France, Germany, Italy, Spain, and Greece want to remain on the euro even as distrust of the nannycrats in Brussels mounts. Given such strong sentiment against further integration, I wonder how long support for the euro can last, but it sure is not forever. Adding fat to the fire, the euro itself cannot possibly survive in its current state. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Cameron Faces Cabinet Crisis of His Own Making; Purposely Self-Inflicted Wounds Posted: 13 May 2013 10:33 AM PDT Over the weekend, the UK Secretary of Defence and the Education Minister caused a stir when they publicly stated on Sunday they would vote to leave the European Union if a referendum were to be held now. Cabinet Crisis Erupts The Guardian reports David Cameron faces EU cabinet crisis as ministers break ranks. David Cameron is struggling to maintain Tory discipline over Europe after cabinet loyalists Michael Gove and Philip Hammond said on Sunday they would vote to leave the European Union if a referendum were to be held now. Gove, the education minister, confirmed for the first time that he believes that leaving the EU would have "certain advantages", while Hammond, the defence secretary, later said he too would vote to leave if he was asked to endorse the EU "exactly as it is today". This is fresh on the heels of an announcement last week that former cabinet minister Michael Portillo and Lord Lawson call for Britain to leave the EU. Lawson was Thatcher's longest-serving chancellor. David Cameron faced growing Tory pressure on Europe last night when the former cabinet minister Michael Portillo threw his weight behind the call by Lord Lawson for Britain to leave the EU. As Boris Johnson entered the fray, by saying that Britain should be prepared to quit if it fails to secure better membership terms, Portillo said he "fervently" hopes the British people have the "guts" to vote no. The intervention by a second Tory grandee came as Charles Moore, Margaret Thatcher's official biographer, revealed that the late prime minister came to believe after she left office that Britain should quit the EU. Writing in this week's issue of the Spectator, Moore says that Thatcher kept her views private after she was advised that her views would push her to "the fringes of public life". Cameron pledged in his speech on the EU in January that he would hold a referendum by 2017 after negotiating a series of reforms to the EU with fellow European leaders. But the former defence secretary writes: "I have not been impressed by Mr Cameron's pledge. Given his party's electoral prospects, I doubt if he expects to have to deliver on it. But in any case, he seems to have decided already that Britain should stay in." Purposely Self-Inflicted Wounds These wounds are self-inflicted. No one believes Cameron has any intention of holding a referendum as promised, because no one can possibly believe one of Cameron's pre-requirements for the referendum. Recall that Cameron pledged to hold a referendum after he is re-elected. He may not survive that vote. But even if he does, his next condition on holding a referendum was renegotiation of the treaty with the rest of Europe. There is virtually no chance of that happening, at least along the lines of Cameron's pledge. So why the promises? Clearly, Cameron would rather lie about the referendum and take the punishment than tell the truth. Hopefully a full-scale cabinet revolt and a full-scale revolt by the party will knock some sense into him before he loses the election. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Paul Krugman "Was" Right Posted: 13 May 2013 01:24 AM PDT Before discussing Paul Krugman and how right he was, let's first take a look at the Spiegel Online report EU To Impose Tariffs on Chinese Solar Panels. Back in 2008, the German solar manufacturing industry was riding the crest of a wave of growth fuelled by generous subsidies and high demand. That year, the darling of the German solar industry, SolarWorld, logged a 31 percent annual increase in revenue for a total of €900 million ($1.18 billion) and expanded its operations by opening North America's largest solar cell plant. Four short years later, in 2012, the company announced €492 million in losses, and today SolarWorld is in the midst of a major debt restructuring deal to stave off bankruptcy. Ironically, SolarWorld made it just long enough to see the success of the effort it spearheaded to slap tariffs on Chinese companies it suspected of conducting price dumping in order to wipe out the competition. On Wednesday, the European Commission in Brussels agreed to impose punitive tariffs of 47 percent on Chinese solar goods. Last year, China sold €21 billion worth of solar panels and related components in Europe. But all of that is just about to get a lot more expensive with a 47 percent cost increase on panels made in the country. The levies are likely to see a response from China, which has already threatened tariffs seen as reactive in an industry that grew by a power of ten in the last five years as solar panels dropped in price by more than 75 percent. And as with any quickly growing industry, the road has been rocky and strewn with wrecks. SolarWorld helped launch the anti-dumping case with a formal complaint filed together with other solar companies with European Commission last July and a similar case in the United States that resulted in tariffs of up to 250 percent on Chinese solar module manufacturers. Clean Energy Hypocrites Please note the irony in these tariffs. The EU is hell bent on promoting "clean energy" but does not want clean energy if the cost is too cheap. Obama's position is similar. Supposedly China is dumping solar panels below cost? So what? If the EU and US were really interested in clean energy and reducing emissions, the only thing better than cheap solar panels would be free solar panels. Step back for a second and think of the benefits of free panels. On one side of the equation, the EU and US would lose a few hundred solar panel making jobs. However, hundreds if not thousands of businesses and individuals would employ solar panels if they were free. Think of all the trucking jobs, dock unloading jobs, and installation jobs, that would result from free solar panels. Whatever jobs were lost in manufacturing (if any), would come back 100 times over in other jobs. Ironically, and in spite of all the protests from manufacturers, I rather doubt any manufacturing jobs were lost in the first place. Did you catch the key words in the first sentence in the Spiegel article? Here is the key sentence again: "Back in 2008, the German solar manufacturing industry was riding the crest of a wave of growth fuelled by generous subsidies and high demand." Without generous subsidies, the European solar panel manufacturers were not profitable in the first place. And so the clean energy hypocrites are also trade hypocrites. It's OK for the EU to offer energy subsidies but not China. The economic illiterates in Brussels would tax the sun for providing free energy if they could. However, they cannot do that so they tax the closest thing. Mittal urges EU to protect itself against China imports With that backdrop, it should not be surprising to learn Mittal urges EU to protect itself against China imports. Lakshmi Mittal has urged Europe to erect trade barriers to protect its manufacturers as the Indian steel tycoon attacked policy makers for stifling demand through tough austerity measures. The owner of the world's biggest steelmaker by sales said the future of EU manufacturing depended on politicians in Brussels helping industry face what he said was unfair competition from China. The London-based entrepreneur said Brussels should consider applying higher tariffs on imports of Chinese-produced steel, similar to the ones to be imposed on solar panels made in China. He argued that Chinese producers of steel were over producing, lowering the price of the metal globally. Insanity of Protectionism Cheaper prices are a good thing. The cheaper steel prices, the cheaper cars and anything made out of steel will be. Whatever consumers do not spend on steel, they will spend on something else. Once again there will be more doc unloading jobs, more trucking jobs, more installation jobs, etc., etc. Cheaper prices of goods and services is always a good thing. What About Krugman? So what does this have to do with Krugman? Actually, everything. After all, Krugman "was" right. The key word is "was". Before Krugman's mind turned to mush (probably a result of acquiring the "conscience of a liberal"), he was on the right side of free trade. In 1997 Krugman wrote a brilliant article "In Praise of Cheap Labor", stating "Bad jobs at bad wages are better than no jobs at all". I wrote about Krugman's position in Fair Trade is Unfair; In Praise of Cheap Labor; Are Bad Jobs at Bad Wages Better than No Jobs at All? Please check it out. Krugman "Was" Right. However, the definition of "was" requires one to go back to 1997 to see just that. Petition of the Candle Makers The EU's preposterous "unfair advantage" argument was lampooned by French economist Frederic Bastiat back in 1845 when he penned 'Petition of the Candle Makers'. In his article, candle makers were incensed that the light of the sun could be had for free. The sun's unfair trade advantage was to the "detriment of fair industries" who could not compete against the sun's price. Something had to be done to "shut off as much as possible, all access to natural light, and thereby create a need for artificial light" so that "industry in France will encouraged". For further reading, and a case involving alleged "unfair competition" from Skype, please see Extremely Difficult to Keep Up With Economic Stupidity. How and Why We Forget the Obvious It is a simple statement of fact that the more goods and services we receive for our money, the better off we all are. The cheaper, the better! Time and time again we forget free trade and lower prices are a benefit! We forget because unions, socialists, and corporations forced to compete against the sun (or Skype), scream "unfair advantage" at the top of their lungs, via political contributions to politicians willing to "tax the sun" to be re-elected. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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