The latest Merkozy treaty proposal is far more hype than reality. What little has been agreed to will be taken back as treaty cracks appear everywhere. Worse yet, numerous austerity measures are counterproductive.

Thus, it should not be surprising that headlines regarding the real European economy (as opposed to Eurocratic wishes) are generally horrific. Here are a few stories that caught my attention.

France in Recession

Via Google Translate, La Tribune reports France Enters Recession

INSEE forecasts have rarely been so dark. The institute provides, in its memo on the economy in December, a decline in French GDP for the current quarter (- 0.2%) and below (- 0.1%). In other words, the recession.

For this scenario is not only French but also European. The euro area show indeed a decline in GDP of 0.3% in fourth quarter 2011 and 0.1% in first quarter 2012 (see chart) and will benefit the end of a carry-over for 2012 does not exist (0.1%). The economic downturn is rooted in the turmoil in financial markets this summer, said INSEE. Since June, the risk premium on the interbank market (interbank security required to support each other in three-year horizon) climbs, as well as differences in interest rates of 10-year bonds of major countries in the area are growing (almost 6% in Spain and Italy, 2% for Germany).

The above translation is choppy, but surely you get the drift.

Italy in Recession

Reuters reports Confindustria slashes 2012 Italian growth forecast

The main employers’ lobby Confindustria on Thursday slashed its 2012 growth forecast for Italy to -1.6 percent from +0.2 percent, warning that even that estimate was optimistic and based on a gradual easing of the euro zone debt crisis.

Italy is already in recession, began shrinking on a quarter-on-quarter basis in the third quarter of this year, and will emerge only in the third quarter of 2013, the employers’ federation said. The country will grow slowly in 2013, by 0.6 percent, Confindustria predicted.

Growth forecasts for both 2012 and 2013 are “optimistic” and based on Italian bond yields falling below 5 percent by April, according to the group’s latest revision of its forecasts. Yields on benchmark 10-year bonds are currently over 7 percent.

Prime Minister Mario Monti’s 33-billion-euro austerity package will weigh on growth, but is necessary to prevent the country sliding into a default, Confindustria said.

Thousands of Poles protest against new EU treaty

Inquiring minds note Thousands of Poles protest against new EU treaty

About 5,000 Poles protested in Warsaw against closer European integration after the government agreed to a new EU treaty for closer fiscal cooperation to tackle economic crisis.
The protesters waved Polish flags and at one point chanted “Disgrace!” during the rally organised by the main opposition, the conservative, euro-sceptic Law and Justice (PiS) party.

The peaceful demonstration took place on the 30th anniversary of a crackdown by communist authorities against the pro-democratic opposition lead by the Solidarity trade union, Reuters reports.

As he addressed the crowd, PiS leader Jaroslaw Kaczynski drew a parallel between the 1981 Poland’s subjugation under the Martial Law to the Soviet Union and the current government’s support for deeper EU integration.

“PiS will lead the fight for a truly sovereign Poland where Poles themselves can decide on what is most important for them, can build their prosperity on their own, because we can afford that,” he said.

Poland, the largest former communist state in the EU, is still outside the euro zone and has so far avoided the recession engulfing much of the 27-nation bloc.

Credit Agricole Quits Commodity Business

Reuters reports Credit Agricole quits commodity trade as crisis bites

Credit Agricole, the formerly farm-focused bank that had boosted its energy trading in recent years, warned on Wednesday of losses and write-downs as it struggles to cope with the credit crunch. The cuts come just weeks after rival Societe Generale (SOGN.PA) shut down its year-old U.S. gas and power trading desk, and leader BNP Paribas (BNPP.PA) consolidated.

The deepening euro zone debt crisis has hit French banks hard as traditional sources of dollar funding have evaporated and as they face pressure to meet tougher capital requirements.

Volatile commodity prices, dimmer growth prospects and tougher regulation are also forcing some firms to question the outlook for the decade-long boom in trading raw materials.

Cargill Inc. CARG.UL, which has voiced a bleaker economic outlook for next year than most of its peers, is cutting 125 jobs worldwide from its energy, transportation and metals operations as part of plans to reduce 2,000 or 1.4 percent of its global workforce over the next six months.

Trade sources said more companies may follow.

“What is happening with Credit Agricole is certainly a major trend across banking where the entire commodities trading business is shrinking,” said a senior commodities trader who recently left a major bank for an independent trading house.

Mainstream Media Admits Obvious

Mainstream media, corporations, and analysts have finally admitted what I have been saying for two months: Europe is in recession.

Poetic Irony

The story of Credit Agricole is symbolic of the banking sector everywhere. Banks are shedding assets, not because they want to, but rather because they have to. The reason they have to is they are over-leveraged or need to raise capital for numerous reasons including new Basel requirements.

The unfortunate irony is banks may be shedding profitable organizations simply because there is still a bid for the assets.

Credit Crunch Math

In a credit crunch, banks, hedge funds, mutual funds, and other organizations sell what that can, not what they want to.

In essence, distressed sellers weaken themselves by shedding profit centers to retain assets for which there is no bid. Then again, there is no legitimate need for banks to be undertaking some of those operations in the first place.

Various ironies and poetic justice abound.

Mike “Mish” Shedlock
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