Europe's Dismal Dispersion Worst In World

Tyler Durden's picture

The dispersion across European nations in terms of growth and unemployment (as we noted earlier) are just two indications of the dramatic amount of economic hubris, as JP Morgan's Michael Cembalest describes it, associated with the belief in a sustainable European monetary union. Using the World Economic Forum's multitude of competitive factors (across economic, social, and political characteristics), the JPM CIO notes that compared to hypothetical and actual monetary unions in the world that the EMU exhibits the largest differences between member nations of any (current or historical), and still Europe soldiers on. "Countries in the European Monetary Union are more different than just about any other monetary union you could imagine" so it’s hard to know how it will turn out. It’s a tough road, and this data helps explain why. Europe’s problem is not just one of public sector deficit spending differences, but also of deeper, more fundamental differences across its various private sector economies. Whether it’s equities, credit or real estate, EMU valuations need to be considerably more attractive than US counterparts to justify investment given the challenges of the European project.

As we wait for the next round of fiscal transfers from North to South, European Central Bank rescue operations, IMF firewall expansions, foreign capital flight, deferral of tighter bank capital standards, elections, Bundesbank resignations, protests, rising unemployment and generally miserable economic data in the European Periphery, it’s worth remembering something broader about what Europe is up to - with countries in the European Monetary Union  more different than just about any other monetary union you could imagine:


What does this chart show?

  • The best way I know of to compare countries is via the World Economic Forum Global Competitiveness Report. This compilation rates 142 countries on over 100 factors related to labor and goods market efficiency; government institutions (property rights, corruption); macroeconomic soundness (debt, deficits); health and education; business sophistication (local supplier quality/quantity); and capacity for innovation (quality of scientific research institutions, R&D spend, patent grants).
  • Using this raw data, I imagined what other monetary unions might exist, and how different their constituents would be. The chart shows the country dispersion for hypothetical unions comprised of the UK and its English-speaking offshoots (US, Can, Australia, Ire, NZ); and of countries in Central America, Latin America, the Gulf, Northern Europe, Africa and Southeast Asia (see Appendix for details). All of these hypothetical monetary unions have lower country dispersion measures than the European Monetary Union. And yet, these regions have resisted the temptation to form one.
  • I even reconstituted the old Soviet Union by combining the Russian Federation with 11 former republics, and the Ottoman Empire, by combining 25 countries which now inhabit its 18th century borders. I also added a random monetary union comprised of the 12 countries on Earth located at the latitude of the 5th parallel (north), and another union comprised of the 13 countries on Earth whose names start with the letter “M”. Even these groupings exhibited less dispersion than the EMU.

And still, Europe soldiers on, even as the rest of the world avoids monetary union in circumstances more favorable to it. What remains are political questions regarding how much inflation and fiscal transfer Germany can sustain; if a true fiscal union can be created, seen by some as indispensable to the Euro’s future; and how much austerity countries like Spain can take.

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sbenard's picture


But stocks are rising again! We have printed prosperity now! Reality is irrelevant!

TBT or not TBT's picture

"Europe" is a utopian project.   Reality must be pushed aside, realists silenced.    When it shatters, it will do so with the heavy handed nationalist demagoguery we and they hoped they were over with.   Bloodletting will occur.

CvlDobd's picture

Operation boilermaker commencing.

meimei's picture

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GolfHatesMe's picture

Market going up, just like every other day with bad news, up at 10:30.  It obviously takes Brian Sack an hour to remember his password.

HelluvaEngineer's picture

How hard can it be to remember "imadouche"?

GolfHatesMe's picture

caps lock on to that password

HelluvaEngineer's picture

Can someone please make a new video titled "BTFD (at 10:30)"?

GolfHatesMe's picture

He's usually out of money at 11:00.  That is until 2:00 or 2:30.

zilverreiger's picture

is the chat still working for you folks?

Agent P's picture

Why is nobody focusing on the troubles brewing in countries beginning with the letter "M"?

francis_sawyer's picture

Good thing for US, we live in a RE-hypothetical monetary union... No wait!

youngman's picture

I for one can not understand why the Euro is hanging at me it should be at 1.00 by now if not lower

mkhs's picture

Don't you understand the word "manipulation?"

buzzsaw99's picture

notice how careful they were not to pan the euro-banks? what tripe!

Zero Govt's picture

"The dispersion across European nations in terms of growth and unemployment ...are just two indications of the dramatic amount of economic hubris, as JP Morgan's Michael Cembalest describes it.."

Yes he would wouldn't he.

Let's just ignore the real problem, Govt, central and retail banking DEBT.

A JP Morgan crone is about as likely to come up with the real problem and real answer as Paul Krugman is to convert to a free market mantra

TBT or not TBT's picture

I'd call those things symptoms, of the deeper cause known as "central planning".    It doesn't work but everyone on the continent, and the UK too, however dispersed their results from nation to nation, are convinced it is the only way.   "Europe" is a result of such thinking, yet more central command and control attempts, to make the plans work, at long last, by submitting to a yet higher level of central planning.

manhunter's picture

The euro is severed from the nationstate by design. This is a strength, not a flaw. European nations can flourish or go bankrupt without affecting the currency. The weight of bad decisions is placed where it belongs, on national governments or those foolish enough to buy their debt. This is the exact opposite of the dollar, where moneyprinting puts losses on the currency itself.

The euro is performing well.

TBT or not TBT's picture

Uh, you missed the part where the euro allowed the PIIGS to borrow for years at zero spread to Germany, racking up huge unpayable debt, creating a massive export driven manufacturing bubble in otherwise demographically doomed Germany?     The Euro has accelerated the demise of political "Europe".     The Depression you are in over there will finish with the very predictable, horribly characteristic rise of nationalism, Europe's bane for many centuries.

Bastiat009's picture

The collapse of the European Union is not that negative for the euro and not that positive for gold ... for now.


Dineroguru's picture

Maybe this bonehead can share his analysis with the jackass running JPM so he can claw back some derivative exposure over there!  But Jamie probably doesn't listen to this dork either!


Manthong's picture

Don’t you realize that their diversity is their strength?

– Just like here.

Nobody For President's picture

Right, the more we talk, diverse it gets...

TBT or not TBT's picture

How can we get long diversity?   Because it is going to get Balkans-level diverse by the end of it all.

BTW anyone notice the lack of news about Egypt's foreign reserves being at an end, and fuel and food shortages, and Muslim Brotherhood antics designed to derail IMF and european union emergency "loans" intended to stave off famine and rioting in the world's most populous arab country?    The Arab Summer is here folks.

Peter K's picture

Or to look at it another way, the graph shows the concept of specialization of labor in terms of nation states. Germans work, and need to relax in Greece for example. Or Northern Italians work and relax in Southern Italy. Funny how nature works:)