EU CONSUMER EXPENDITURE

EU Consumer Expenditure

EU Consumer Expenditure

Introduction

Consumers spending in the second quarter of 2011 were higher by 2.5% over the same period last year, maintaining a 2.5 percent pace growth recorded in the first quarter. Total score for the first half of 2011 is the highest growth in the last five years - although predictions for the second half of the year are less optimistic, due to recent developments in the European Union (Desai, 2003: 12). Consumer spending increased by seven quarters in a row, with the highest rate in the second quarter boasts an area of Central and Eastern achieved double-digit growth rates in Latvia (12.6%) and Estonia (10.2%) and are followed by Czech Republic (8.9%), Poland (7%), Slovakia (6.6%) and Lithuania (6.5%). Among the largest EU economies, modest results were achieved in France (2.6%) and Germany (3.4%), while Spain was surprised observers, an increase of 4.3%. Consumer spending fell while experiencing trouble "peripheral" EU countries, including Portugal and Ireland. The belt clamping Greece, after a year, there was a significant decline, in the level of consumer spending in second quarter of this year. 

Discussion

With the 2008 economic and financial crisis, the boom in consumer spending and housing became a bust in these countries which were economically noncompetitive because of the strong Euro-they could not compete with German efficiency. In addition these countries governments were running huge deficits because of prolific spending and overly generous entitlement programs for its citizens (Diewert, 2002: 547). The banks and the government of Germany showed a little more restraint during this period (but still had to bail out a few problem banks), and for that reason are in a stronger position today. Now, because of the large exposure to these troubled countries debts, the solvency of these large banks is being called into question causing severe pressure on the large European bank stocks and the entire stock market itself.

Why does this affect stocks here in the U.S? Well, these European banks trade billions daily with their counterparties in the U.S. and U.S. Banks have insured European debt through complex derivative transactions-no one knows the extent, but it is $Trillions. Another factor is there are billions of dollars from U.S. money market funds invested in these large European banks, so problems in Europe become problems for bank stocks here in the U.S. as well and call into question the stability of American banks, and worries about a relapse of the 2008 crisis which is affecting all areas of the stock market.

So why can't the EMU just bail out all the banks like we did here in 2008? Well, when the EMU was formed, the countries agreed to a common currency, but refused to surrender control over their individual banking and financial sectors. This has greatly limited the possibilities of coordinated action like we had here in the U.S (Diewert, 2002: 548). Thus, any assistance packages must be developed, funded, and managed by each country and not the EMU itself. So countries with large and growing budget deficits and national ...