Europe casts pall over northern economy
November 15, 2012
Europe is going through tough times, tougher than the downturn in Japan or the United States. These economic problems spill over—even to the north.
Recent massive and widespread anti-austerity protests occurred across Europe. The strikes and demonstrations, some involving hundreds of thousands of people, hit more than 20 countries in the EU, disrupting airports and ports, closing roads and public transportation, and shutting some essential services. The biggest protests were in Portugal, Spain, Greece, and Italy. The union-led protests—called “European Day of Action and Solidarity”—were mostly peaceful, but turned violent in Lisbon, Madrid, and Rome.
Production is falling throughout Europe. A recession has set in for all countries save Germany. Unemployment is very high in the south. Governments follow austere policies that have resulted in reduced demand, lay-offs.
The EU has the largest economy in the world, with a GDP of about $17.6 trillion (the US is about $15 trillion). When Europe goes into a recession it is felt even in the north.
Commentary
Europe is deleveraging and the process is painful. Even though Europe is far away from the north, the faltering economy does have an impact:
- Investor confidence is lower. The US and Canadian stock exchanges have lost about 11-15% since September. The volatility in Europe contributes to investor unease worldwide.
- Hard to raise capital. Mining companies have difficulty raising capital for exploration or development. Even a global giant such as AcelorMittal, based in Luxembourg, is under pressure to reduce its debt levels. Acelor is wanting to develop the Mary River iron ore deposit in Nunavut at a cost of $6 B. The project may get slowed down or the company may have to partner to move it forward.
- Lower investor returns. Assets sell for less than expected. For example, BHP Billiton recently announced the sale of the Ekati gold mine in NWT to Harry Winston. The sale price of $500 M was less than the $1.5 B that was expected.
Sources
- a)http://blog.yardeni.com/2012/11/europes-recession.html
