European Growth Horrendous: Politicians Blame the Weather, Again

May 16 2014

After writing extensively about the abysmal US Q1 GDP report two weeks ago ('It’s the Weather, Silly'), this week attention turned to Europe, as GDP figures over the first quarter were released. Although US growth was disappointing, euro zone growth was even weaker. Many countries actually had a declining GDP or came in below expectations. Only Germany surprised on the upside.

European Growth Horrendous: Politicians Blame the Weather, Again

After writing extensively about the abysmal US Q1 GDP report two weeks ago ('It’s the Weather, Silly'), this week attention turned to Europe, as GDP figures over the first quarter were released. Although US growth was disappointing, euro zone growth was even weaker. Many countries actually had a declining GDP or came in below expectations. Only Germany surprised on the upside.

Dutch GDP Declines 1.4% in Q1

Politicians were perhaps too early to declare the economy was no longer in recession. Despite new evidence to the contrary, they remain firm in their conviction that the economy is indeed recovering, even after GDP declined last quarter. But they are optimists, not realists. Politicians don’t gain by offering sound and realistic analyses; they gain by (sometimes false) optimism and telling voters whatever good news they want to hear.

Meanwhile, Finland fell back into recession, Italian GDP declined (-0.1%) and a Portuguese recovery seems problematic (-0.7%). Economic growth in France stalled, as no change in GDP was recorded in the first quarter. The Netherlands was an outlier, Dutch GDP declined 1.4% in Q1.

It Was Too Warm!

Whereas economists in the US blamed the cold for the disappointing GDP, European economists blamed the warm weather. Paradoxically, some countries proclaimed that lower natural gas consumption during winter led to disappointing growth, while other countries, foremost Germany, said the warm winter actually resulted in higher than expected economic growth because real estate construction could continue uninterrupted.

In fact, the Netherlands was slightly hit by lower gas revenues as natural gas export is a major source of revenue. However, it didn’t account for the entire decline. Natural gas production as a percentage of GDP amounts to about 3% in the Netherlands. Reports point at a 25% reduction in gas revenues due to lower demand, which would, according to my quick and dirty estimate, equal about 0.75% of GDP. Nevertheless, GDP declined 1.4%. The headlines fail to tell the whole story.

Bad News: European Elections Coming Up

The disappointing GDP report will most certainly increase dissatisfaction among European voters. With the European elections around the corner, it will be interesting to see how widely supported anti-euro parties are.

One Dutch member of the European Parliament revealed on camera the excesses of the European elite. While earning €6,200.- (after taxes) each month for only working four days (per month, yes), they are many loop holes to abuse European tax payers’ money. Each Member of Parliament can, for example, freely spend €21,209 on personnel. Most of them “hire” their wives and increase their household incomes manifold.

It’s not just that. By working 4/5 years as a member of parliament, they gain generous pension rights: at 63 years old they’ll receive €1,400.- monthly on top of their normal pensions. There are many other benefits a Member of the EP can claim, but we’ll stop here, because I just wanted to provide insight into the widespread abuse of European tax payers’ money.

These excesses will lead to less support for the euro project and to higher political and economic instability in the future.

Europe Is in Terrible Shape

Although a recession cannot be forever, it is very likely economic growth will remain dreadful for the coming decades. The European welfare state model is nearing its expiry date. Few people work and a lot of people live off the people that work. Government spending per worker in the private sector amounts in the Netherlands to almost €40,000.- each year and in other nations the situation is not much better. Even though the productive layers of society are heavily burdened by excessive government, governments cannot get their country’s fiscal houses in order.

There is not much more to tax, but politicians in European countries are wary in cutting government expenditures. The result is something counterproductive: a heavier burden on those that produce and support the rest. Europe is not the place for young bright people, and capital looks for places where it is best treated. As a result, Europe’s outlook remains frail.

Newsletter

Sign up for our periodical newsletter to stay informed about the gold and silver markets and special offers.