European Banking Paralysis
While the latest ECB rate cut was supposed to provide a strong incentive to European banks to lend to each other and to businesses current data shows that European banks have in fact increased deposit to the ECB from 791 billions of the 9 July to 992 billion.
In a scenario where banks are reluctant to lend to each other there is little hope to see European banks lending more to businesses. The absence of increased lending and, at the same time, the increase in austerity measures like in the case of Spain will lead only to a deeper European recession.
The current problem is that the European decision making is once again much slower than what the Economy - and not just the markets - need. Without pro-growth initiatives and a serious containment of unemployment (that can only occur with increased competitiveness) Europe will almost certainly fall to a deeper recession.
Lack of competitiveness will lead to higher unemployment and more austerity measures will not solve the Government debt problem.
With the exception of European financials there are still several European competitive companies like these with global operations. For example luxury good makers and global consumer companies based in Europe maintain steady dividends and a reasonable rate of growth creating an interesting investment opportunity. (Especially if we see more drops in the European markets).
- Despite the low interest rates European Banks are still not lending to each other and probably lend even less to businesses.
- More austerity will not solve the problem but lead to higher unemployment and a deeper recession.
- There are still some investment opportunities in Europe for example consumer products and luxury good with Worldwide operations.
- I expect more negative news this summer from several European countries (including Greece where the issues are far from solved).