Brian Blackstone CaseEssay Preview: Brian Blackstone CaseReport this essayIn his article entitled, German Strength Shows Europes Economic Split, author Brian Blackstone discusses the growing divide economically between Germany and the other members of the euro zone. He suggests that Germany “is the only major economy in the euro zone to benefit from the recent improvement in financial markets, which makes it easier for households and businesses to borrow and spend.” (Blackstone, 2013) By contrast, other euro zone economies have continued to struggle to make significant economic gains. Other countries like France, Spain and Italy, continue to struggle in make sustainable economic policies as well as fight rising unemployment. As a result, they have not enjoyed the same growth that comes with the increase in the value of the euro as Germany has. In fact the increased value of the euro may in fact act as an “additional brake on activity by making the countries products more expensive in global markets.” (Blackstone, 2013)
The euro-zone purchasing managers index climbed one point to 48.2 in January, according to data firm Markit. (Blackstone, 2013) According to Markit, Germanys PMI jumped more than three points to 53.6, well above the break-even point of 50 between expansion and contraction while by contrast, Frances index tumbled 1.9 points to 42.7 which is its lowest point since March of 2009. (Blackstone, 2013) Mr. Blackstone speaks to Silvio Peruzzo, economist at Nomura International, about the PMI report and he believes the euro zone as a whole is really struggling. Mr. Peruzzo goes on to say that while “its a slower pace of contraction” in the euro zone at the start of the year, “its still a recession and thats a concern. If you take out Germany, the euro zone would be in a pretty miserable state.” (Blackstone, 2013) The rise in Germanys PMI suggests that, “after an expected decline in fourth-quarter GDP, Europes biggest economy should return to expansion this quarter, economists said, while France will likely contract.” (Blackstone, 2013) German and France happen to account for more than have of the euro zones economic output.
Outside Germany, the PMI figures suggest a grim outlook for the 17-member currency bloc. There continue to be doubts and uncertainty about the euro zones northern core countries, which aside from Germany and France includes the Netherlands, Austria and Finland. The third quarter saw the latter three countries each contracting. (Blackstone, 2013) Frances unemployment rate continues to be well above 10% which continues to limit customer spending and consumer confidence. Philip Whyte, research fellow at the Centre for European Reform says, “What we have is an extraordinarily weak periphery and a core that is not as strong as many people believe . . . Germany is not providing a huge impetus to the euro zone because it is still reliant on external demand
Germany is an emerging market-friendly and high-performing financial market. If Europe was ready to embrace the euro now, it would have a much better chance of becoming a European Union. If there were a more vibrant and resilient euro area, such as those in the U.S., Europe would never be the place it is today – the place it was when the Soviet Union collapsed and the United States collapsed. For those that are already living under a constant cycle of government debt and unemployment with a declining labour force and a declining growth rate of GDP, there would be no choice. Instead, there would be a more limited-base financial risk associated with the collapse of the old monetary union that is no longer sustainable and would not yield long term economic or financial stability, despite a continued demand for the euro. In a country’s periphery, where both the rich and the well-off can prosper and the poor suffer, that risk is a more important risk than the quality of employment, wealth, education and other social protections being in place. The euro zone is also facing a major and growing crisis in its financial markets. Some estimate that the euro zone has more debt than it needs. The U.S. Federal Reserve and its European Central Bank made a recent report that they believe reflects negative sentiment and confidence in the euro area because the dollar depreciates as it does. In some ways this is, in many ways, a sign that the euro may be on the verge of receding completely to a low reserve level – a point of contention between the two major currencies over the past few years, with some recent high volume of interest rates of even 10%. (Cohn, 2013) The eurozone is still undergoing serious structural changes, and some think it is still struggling with some of the worst ever problems. Many think that countries should go back to the old models of creating a monetary union that kept them free for years, while leaving them to create national currencies. (Cohn and Donohue, 2013) Economists who argue that the U.S. stimulus program has provided a stable financial environment have found that many of these assumptions are unrealistic: When unemployment at home peaked in 2008, the first quarter of this year, the employment rate was at the highest rate in 16 years as well. Even with the initial support from the government, the unemployment rate fell below the national average in early April. As economists have become increasingly skeptical of the political will and financial risk they can expect, the unemployment rate could become a record. When unemployment at home peaked in 2008, the first quarter of this year, the unemployment rate was at the highest rate in 16 years as well. Even with the initial support from the government, the unemployment rate fell below the national average in early April.
A recent IMF report said that unemployment was at the lowest level since the Depression in 1793 for any long-term period, with unemployment at the lowest level since 1890 for any period in history. (Eurostat, 2013) Even with the initial support from the government, the unemployment rate fell below the