Adding fuel to the fire of Europe’s economic crisis


More troubling signs for the global economy are becoming clearer, and should they continue, more misery is inevitable.

Water crisis goes global

From EurActiv:

England’s third dry winter in a row has led British authorities to call for conservation measures, while China’s government has warned that two-thirds of the country’s cities face severe water shortages because of drought and rampant consumption.

“We’ve got a drought here that is now embracing three winters, and that’s why it’s serious,” said Terry J. Marsh, head of the National Hydrological Monitoring Programme at the Centre for Ecology & Hydrology in Britain.

A year ago it was mainly farmers concerned about dry conditions, “but now concern extends to the environment and most particularly water resources.”

Prolonged dry spells have threatened parts of China, Russia, Australia, France, Spain, Portugal and the southern United States in recent years – affecting food output but also raising worries about the long-term stability of water supplies.

Read the rest.

Major food shortages, brought on by drought, would toss another heavy way onto the downside of the already tipping balance of political stability. And pay particular attention to the drought in Spain, a stricken economy that’s also a major producer of tomatoes and other produce for the rest of Europe.

And then there’s oil prices

Now throw into the mix some facts noted by Britain’s The Observer in their lead Saturday business story:

Just when policymakers and businesses were daring to believe that growth was returning, after the eurozone crisis hammered confidence at the end of 2011, they’ve got a different and more viscous enemy to worry about. As Stephen King, chief economist at HSBC put it, “oil is the new Greece”.

Even the most pessimistic commentators think the combination of the European Central Bank’s long-term repo operation, and the €130bn bailout for Athens – albeit with half the money held back for the moment – has bought the eurozone some valuable time.

The extra €1 trillion of three-year loans sloshing around from the ECB’s two interventions, in December and last week, has helped to avert the possibility of a full-blown credit crunch or a domino run of bank collapses for the time being. And the new loan to Athens will enable it to pay its bills for a while – though few believe that Greeks will ultimately put up with the penury to which they are being subjected.

But even as the flood of bad news from the eurozone abates for the time being, the crippling cost of commodities could choke off the recovery in Europe before it begins.

Read the rest.

Food prices edge upwards

Now add in a third set of facts, from the United Nations Food and Agricultural organization.

Though data for February won’t be posted until Thursday, figures from January already show food prices are on the upswing:

The FAO Food Price Index (FFPI) averaged 214 points in January 2012, nearly 2 percent (4 points) up from December. The rebound represented the first upturn in the FFPI since July 2011 but the index remained 7 percent below its corresponding value last year. In January, prices of all the commodity groups that compose the Index registered gains, with oils increasing the most, followed closely by cereals, sugar, dairy and meat.

Both drought and rising oil prices would send food prices significantly higher. And consider this FAO graphic on the overall trend in food prices in recent years:

Now add into the mix the nature of modern agriculture, which is utterly reliant on massive inputs of oil, to feed the machinery and processing equipment to keep it running, and on vast quantities of natural gas to produce ammonium-based fertilizers.

Top it all off with a drought, and we witnessing the rise of an explosive crisis, especially given the fact that higher food prices combined with soaring unemployment along Europe’s southern rim are combining with drastic cuts in pay and pensions.

We suspect Europe’s headed for a long and very hot summer.

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