IN SPAIN, the Banco Santander Central Hispano, the country’s biggest bank, announces the closure of 1000 branches and wants half its senior staff to take early retirement. In Germany, the state railway says that it will make 5,900 employees redundant. In France, the top information service company, Cap Gemini, declares that 2,700 jobs are to go; Philips intends to ax 1,214 at its Le Mans plant; and the flagship of French high-tech, Alcatel, with 120 factories worldwide, is to rid itself of almost all of them.
That is just this week’s bad economic news in Europe. Every week, announcement follows announcement of massive job losses across the continent as the depression bites. Yet ironically on Wednesday, the very day that Alcatel’s radical attempt to stave off meltdown was made public, the euro staged a recovery. It did so ostensibly in response to claims by the president of the European Central Bank that the outlook for European growth was satisfactory and that the euro’s fall had finished. That hardly fits the facts.
The eurozone economy, especially in Germany, is distinctly shaky. Only last week, the forecast for German economic growth this year dropped from 2.1 percent to 1.2 percent. The maximum overall European growth is set at 2.5 percent this year, sharply down from last year’s 3.4 percent. Compare that to 8 percent growth in China for the first quarter of this year. No wonder international investors are looking anywhere but Europe — and while they keep their money away, the euro will remain in the doldrums. The European media, notably in France, talks about being destabilized by an American depression. While there is still a great deal of truth in the old saying that when Wall Street sneezes, the rest of the world catches a cold — and it certainly is the case that the American economy is worryingly becalmed — the Europeans cannot avoid responsibility for the fact that there is precious little international confidence in their economy. A sagging US market and a depression in the international information technology industry have not helped; but had the Europeans not embarked on their single currency dream, it is doubtful if they would be in their present circumstances. The Bundesbank would have been able to rescue Germany from its economic downturn, the Bank of Ireland do the same for an Irish economy suffering from high inflation specifically because of low European interest rates, and other central banks the same for their countries, all of them relying on separate and differing monetary policies.
The single currency has given Europe is own bout of influenza. The American sneezing has merely added to the misery. No wonder international investors worry about the eurozone market. With European companies forced into radical retrenchment and the return in euros far from appealing, investment in euroland looks like bumpy ride. Not that Japan is any better. Nor, on present form, is Wall Street.
Historically, this is the time when investors turn to gold. Of course, there is one obvious alternative for Saudi private investors with their estimated $500-650 billion placed abroad. Bring some of it home and put it into the new projects associated with the Natural Gas Initiative. It should make as good, if not better a return as anywhere else; and it will do the country a great deal of good.
