The Eurozone and a Housing Bubble in Spain
I reported recently on posts and sources about the housing bubble in Europe and whether/how this was driving global demand growth or put differently; whether this constituted a basis to claim that Europe will take over from the US driving global economic growth forward. In the comments section of my post Eurocent pointed out the lack of commentary on the European housing bubble in particularly Spain. Now, over at his own blog Eurocent apparently decided to do some commentary himself and in doing so he refers to my post linked above. His post is homing in on the right issues I think and as such it merits a close look.
Let us begin with this just to clear things up ...
'Thus, Europe is supposed to take over from the US, where they are already suffering a housing-led hard landing (likely to turn into a recession by 2007). Claus gives no reasons for being skeptic, but he says he is.'
It is true that the specific post did not contain any of my arguments on this but I did link to some earlier posts which should give you plenty of ammunition in terms of my arguments. For another (short) one go see this one from Edward at Bonobo Land.
'Despite all the apparent optimism you can find round and about, the Eurozone is in fact slowing, the latest industrial output data from France seem to make this abundantly clear. What I find hard to understand is how so many people can have been wrong-footed on this.'
So this was my arguments on the Eurozone and reading through Eurocent's post I realize that I might actually have a brother in arms. The important point is this one; a housing bubble in some parts of Eurozone does not mean that the club as such is doing well or should I say similarly ... see also this column by Bloomberg's Matthew Lynn which puts this discussion into perspective.
'(...) economic and demographic factors vary greatly between different EU countries, so predicting the effects of a housing boom on all of them as a whole seems unrealistic. Spain and its lonely housing rally should be proof enough of outliers to such theories, not to mention Germany, which was supposed to be the EU locomotive and is currently missing the housing train.'
And this one is one to watch as well ...
'Current interest rates seem to lie in a twilight zone: one may regard current values as high when compared to one year ago, but four years ago these same values were considered low enough to trigger the Spanish housing boom. In any case, real interest rates are still negative in Spain. And what about the path forward? the ECB faces both weak growth and housing inflation, which pull interest rates in opposite directions. The ECB may let the bubble grow so people can have the illusion everything’s going just fine for a few years before they get hit by recession. Or they can just let us stagnate in boredom a bit longer, then let us use our savings to produce some real, hard-earned growth.'
In the end Eurocent, you will see that you and I agree on a lot of things when it comes to this issue.