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Lighthouse - Euro-Zone Monitor - 2013-04

Lighthouse - Euro-Zone Monitor - 2013-04

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Published by Alexander Gloy
A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration.
A walk through the Euro-zone with charts of macro-economic data reveals the crisis is far from over. Instead, most trends are pointing towards further deterioration.

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Categories:Business/Law
Published by: Alexander Gloy on Apr 03, 2013
Copyright:Attribution Non-commercial

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05/18/2013

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Lighthouse Investment Management
Euro-Zone Monitor - April 2013 Page 1
Euro-Zone Monitor
April 2013
Contents
 
European Equity Markets Diverge as Crisis Resumes ............................................................................... 2A Walk Through the Euro-zone ................................................................................................................. 3Nominal GDP: G6+1 .................................................................................................................................. 4Nominal GDP: Europe ............................................................................................................................... 5Real GDP.................................................................................................................................................... 6Governments' Share of GDP ..................................................................................................................... 7Government Revenue and Spending ........................................................................................................ 8Cuts in Government Revenue and Spending ............................................................................................ 9Trade Balances / Average Cost of Debt .................................................................................................. 10Unemployment ....................................................................................................................................... 11Debt-to-GDP, Primary Balance................................................................................................................ 12House Prices, Unit Labor Costs ............................................................................................................... 13Retail Sales, Industrial Production .......................................................................................................... 14Deposits, Loans ....................................................................................................................................... 15Summary ................................................................................................................................................. 16Conclusions ............................................................................................................................................. 16
 
Lighthouse Investment Management
Euro-Zone Monitor - April 2013 Page 2
European Equity Markets Diverge as Crisis Resumes
As I was recently dining at a restaurant, the couple at the neighboring table kept complaining abouttheir food. The server tried to make things right, but eventually the manager had to intervene. Later, Ioverheard the manager lecturing the server, explaining that "perception is reality".And it's true. What does it matter if your bank deposits are safe as long as most customers
believe
theyare safe? The worst thing that can happen to a bank is pictures of long lines of customers trying towithdraw money. Or, as in Cyprus, banks being closed, limited account access and "haircuts" to thosewho believed their money to be safe.Only then reality pierces perception, and depositors are suddenly reminded they are merely creditors.From the bank's perspective, deposits are a liability, a source of funding for their assets. The bankcustomer, of course, has no idea what kind of assets the bank acquires, and the risks taken. And heshouldn't have to.However, after the Troika (EU, ECB and IMF) seemingly didn't mind haircutting small depositors inCyprus, every depositor should be aware that the EU-wide deposit guarantee does not exist.By confiscating deposits of those depositors, who had little to do with the demise of their bank, a newfrontier in the Euro-zone crisis has been reached. EuroGroup president Dijsselbloem made it clear theCypriot bail-in was a template for future bank rescues. Depositors in the Euro-zone periphery are onhigh alert, and will likely not think twice before starting a bank run. Just as the Euro-zone crisis subsided,politicians have succeeded in setting it on fire once more. A strong divergence of returns in Europeanequity markets since February (see chart) is a sign of increased trouble ahead.
 
Lighthouse Investment Management
Euro-Zone Monitor - April 2013 Page 3
A Walk Through the Euro-zone
Why has the Euro-zone fallen back into recession, and why can't it shake of its seemingly never-endingcrisis? Is there light at the end of the tunnel?It has been a while (Letter to Investors, March 2011) since we last looked into macro-economicdevelopments inside the Euro-zone.A picture says more than a hundred words, so here are a few charts, with comments.

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