According to several recent statistics, the Eurozone’s future is looking brighter than it has in a long time. Not only has Eurozone unemployment fallen for the first time in two years, but manufacturing has increased, while bonds have risen all around thanks to some positive news from the US. Even European Central Bank head Mario Draghi has signaled that the worst is probably over.
But when French President François Hollande victoriously declared to Japanese investors in June that “the crisis in the Eurozone is over,” was he speaking the truth? If we take a quick tour of the five rescued countries – Greece, Ireland, Portugal, Spain and Cyprus – to see how their bailout packages are coming along, we can get some more clarity on the situation.
First of all, Greece has received the largest bailout packages, with the first one initiated in May 2010 for €110 billion, and the second one in February 2012 for €130 billion. Unfortunately, at the moment Greece looks rather problematic, and the International Monetary Fund recently revealed fears that Greece may need another bailout in the future to patch up its budgetary gap. This comes at a time when there are disagreements over how much Greek debt should be relieved by other Eurozone members, as well as internal debates over the privatization of industry. All in all, without any positive economic signs in the future, Greece is looking quite poor.
Second on the list is Ireland, which received €67.5 billion in November 2010. Things are looking fairly sunnier for Ireland, as it is on schedule to exit the bailout program by the end of this year. However, this is not fully guaranteed, and even if it does happen, Ireland will still be in a vulnerable position. It is not clear what kind of credit reassurances the ‘troika’ (the trio including the IMF, the ECB and the European Commission) will be able to provide in the future. Nor is it certain how rigidly Ireland will stick to its austerity measures, and how much room this will provide for growth.
And then comes Portugal. Having asked for a bailout of €78 billion in May 2011, the country has experienced a political rally over the past few months. Just last week the prime minister’s government won a vote of confidence and vowed adamantly to meet the bailout goal of reducing the budget deficit to 5.5 percent of GDP by the end of this year. However, Portugal is also rumored to need an additional bailout in the coming year, thanks to its stubborn recession, although political stability may help perk up economic performance and minimize the damage.
As for Spain, while the bailout package was actually for its banks, the access to €100 billion of rescue loans in July 2012 was definitely a significant sum. The good news is that the bailout of Spanish banks has gone a long way in helping to avoid a bailout for Spain as a whole, which would be disastrous for the Eurozone due to the size of Spain’s economy. But worrying economic indicators, especially regional budgetary difficulties, remind us that all is not well. Fortunately, Spain’s economy may soon see the light of day considering its economy contracted by only 0.1 percent last quarter.
Finally, Cyprus sparked great interest earlier this year when it became clear that it, too, needed a bailout. Though the bailout ended up being less than a tenth of the Greek bailouts, the controversial demands from the Eurozone meant the risk of a Eurozone exit was palpable. Nonetheless, the IMF has reported that the Cypriot agenda to meet the terms of the bailout are reassuring, and the finance minister of Cyprus expects “no suprises” in the future.
All in all, things in the Eurozone are not quite well but are going in the right direction. Most of the bailed-out, crisis-worn countries are still struggling to break the spell of debt, but it seems that only Greece and possibly Portugal are having significant problems. Yet, it is important for investors to remember that every piece of the Eurozone puzzle is important. Current disputes, such as the one between the IMF and the Eurozone concerning the future burden of these bailout plans, can have unnerving consequences. Add to this a myriad of uncertain factors such as the upcoming German elections and the ever-present question of Italy’s debt, and it is safe to say that Mr. Hollande’s statement, though admirably hopeful, was premature at best.
