The European Commission is forecasting a negative growth for 9 EU countries in 2012. Belgium (-0.1%); Cyprus (-0.5%); Greece (-4.4%); Hungary (-0.1%); Italy (-1.3%); Netherlands (-0.9%); Portugal (-3.3%); Slovenia (-0.1%) and Spain (-1.0%).

Technically, BELGIUM, ITALY, NETERLANDS, GREECE AND PORTUGAL are now in recession.

This is not surprising. The simultaneous implementation of austerity plans in the different countries to balance public accounts and "save the euro" could only but trigger a contraction of the economy. To this must be added the banks' policies. Already very exposed to the sovereign debt crisis, weakened by the consequences of the "sub-prime' crisis and the so-called "toxic" credits, banks have substantially reduced the inter-banking credit as well as the credit to private individuals and enterprises. The European Central Bank tried to prevent this scenario and it granted important credits to banks for three years. But it has not helped. Banks have used this money to make short-term placement (less than one year) and they have brought a part of their debts to the European Central Bank. The movement of credit contraction could not therefore be stopped. Today we are faced with a deflation policy undertaken by the states and a strong credit contraction driven by the banking sector.

Social conesequences are obvious: Unemployment already important in those countries is going to increase. In Spain it should reach 23% and in France 10% by the end of 2012. But the economic and fiscal consequences of this situation are even worse. From a fiscal point of view, the combining of recession and the increase in unemployment is going to reduce to nil the efforts undertaken to reduce the public debt. With a lowering of their domestic production those countries are going to register a proportional decrease of their fiscal revenues. At the same time, social expenditures will increase given the increase in unemployment. Public deficits which it was thought could be reduced by austerity measures are going to resurface at the end of the first quarter in 2012, which will require new austerity plans adding their deflationary effects to the preceding ones.

Beside notation agencies that are as much fearful of debt as they are about recession are going to continue to degrade countries one after the other. This degradation means an increase in borrowed funds that are necessary to refinance existing debt, or to ensure the financing of deficit on the financial markets. Already France will need to borrow € 178 billion euros in 2012, Italy probably € 450 billion, Spain probably more than € 250 billion and this without counting the needs of Greece, Portugal and Ireland.

The increase in the cost of the debt will weigh even more on public budgets, forcing governments either to reduce other public expenditures (and worsen the deflation movement) or reach a higher deficit than forecast. Nothing therefore seems to be capable of stopping the deflationary spiral in which the Eurozone is engaged, under the false hope to save the euro. This will have consequences not only for neighbouring countries in Europe but also for countries outside Europe.

The credit contraction in the Eurozone is going to affect in an important way banks in Central and Eastern Europe, that are very dependent for their refinancing on German and Austrian banks (Raffeisen and Volksbank), French and Italian banks (Intesa and Unicredit). Bulgaria, Czech Republic, Hungary, Latvia, Lithuania, Poland and Romania have accumulated € 652 billion of debt. A reduction in loans by the largest European banks will have important conesquences for the economic activity of those countries. But the most important consequence will be in the commercial area. With the entry into recession of a large part of the Eurozone, emerging countries that export manufactured products will be the most penalized. For exporters of raw materials (such as Russia or Brazil) the impact will be less but nevertheless significant.  In Europe, countries likely to be most impacted will be the Czech Republic, Hungary, Romania and Poland.  Given their industrial specialty, China, South Korea and Malaysia will be the countries in Asia  where the impact will be most important.

Thus the recession in the Eurozone should have important conesquences for Asia as well as Central and Eastern Europe where exporters of manufactured goods are concentrated. Consequences will be less in the Middle East and in Russia. But overall the world economy will be affected. By thinking only about the Euro, the French and German leaders who are at the origin of the diverse austerity plans applied in the different countries of the Eurozone have take the responsibility to inflict a crisis in the crisis.

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