Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

30 October 2013

The new problem countries of the eurozone


Default: Change to:


In Spain, Portugal and Greece reforms are progressing, albeit slowly. However, in some euro core countries, there are new and dangerous weaknesses: In France, Belgium, the Netherlands and Finland public and private debt levels are still rising.


France

As reported by the Welt, France's main problem is its rigid labour market. Unemployment is as high as ever with 3.3 million unemployed, corresponding to a ratio of 10.9 per cent. Economists expect this figure to rise in the coming year to over 11 per cent. Despite an excellent infrastructure and a high level of education, the country has lost its competitiveness. Because of high taxes and a rigid labour market France is in the global comparison of the World Economic Forum only ranked 23rd, whereas Germany is in fourth place. 10 years ago, the French regularly exported more than they imported, now the current account deficit stands at two per cent of economic output.

The Frankfurter Allgemeine Zeitung even reports that "France is on the brink of riot". The ruling Socialists in Paris are no longer able to enforce their decisions: Whether it is the introduction of a green tax, whether life insurance and savings contracts should (retroactively) be burdened with higher taxes, or when it comes to tax increases for businesses. Each measure is met with waves of protests throughout the country and the government keeps taking back decisions after a few days.

Now Hollande faces the consequences of having won the presidential elections with a completely Utopian programme promising that France could overcome the financial and economic crisis without sacrifices for the citizens and without radical reforms, such as in the public sector.

Netherlands

The Netherlands are facing a housing crisis. The Netherlands are still among the 10 most competitive countries and have high export surpluses. Nevertheless, the gross domestic product in 2013 might shrink already the second year in a row, which is caused by the bursting housing bubble. Since 2008, residential property prices have slumped by more than a fifth. The household debt amounts to about 130 per cent of GDP because of relatively high mortgage loans. The combination of high household debt and house price bubbles is leading to the Dutch restricting their consumption. The Netherlands are predicted only 0.5 per cent growth in 2014.

Belgium

Belgium's main problem is too little investment in research and development. As France, Belgium now imports more than it exports. The products from both countries are often not located in the high-tech sector and are therefore exposed to particularly strong international price competition. In Belgium, too, competitiveness has suffered. The first quarter alone, labour costs in industry and service providers have risen by 2.6 per cent, compared to the euro area average of only 1.6 per cent. Belgium's debt levels are also soaring: public debt is expected to rise this year to about 100 per cent of economic output and climb further in 2014. This leaves little scope for investment or tax cuts to stimulate the economy. Gross domestic product shrank in 2012 and is expected to remain this year at this level. A growth of up to one percent is predicted for next year.

Finland

Finland is faced with rising mortgage rates. Although Finland comes in the ranking of the most competitive economies in third place - ahead of Germany - this did not prevent the gross domestic product in 2013 from contracting for the second year in a row. The national debt is also likely to increase in the coming year for the first time since the Second World War to over 60 per cent of economic output, putting the top AAA credit rating at risk. Private debt levels are much higher: According to Commerzbank they amount to 180 per cent of gross domestic product. Again, house prices are now seen as overvalued. In addition, almost all mortgage loans are at variable interest rates which could raise the cost of loans quickly.





< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment