Money returns to eurozone, but jobless rate rising
That's the conflicting message of a pair of reports that show why Europe is less of a threat to the world financial system than it was last year, but is still no less of a drag on the global economy.
The money returning to the currency union is in the form of short-term investments by US money market funds - often an important supply of dollars and short-term funding for European banks.
When big US funds fled Europe in 2011, they intensified the problems faced by eurozone banks and heightened the sense a crack-up of the eurozone was not just possible but even likely.
Fitch Ratings reported Friday that the top 10 US money market funds - the large pools of cash used as play-it-safe investments and money management tools - have nearly doubled their eurozone holdings since hitting a low last summer.
Eurozone banks now account for 14.5 per cent of top fund holdings, or nearly $US100 billion ($A98 billion), according to Fitch's research. The 10 firms analysed by Fitch represent about 45 per cent of the roughly $US1.5 trillion US money market pool.
The turnaround in money-market investments in Europe is part of a general easing of the region's financial crisis.
Though the confused results of a recent Italian election were a reminder that problems could worsen again if governments are unable to deliver on promised steps to control debt and revive economic growth, the region has stepped back from what seemed a looming break-up.
What hasn't turned around is the real economy, which remains in recession. The Eurostat statistical agency reported on Friday that unemployment in the 17-nation currency zone rose again in January, to 11.9 per cent, compared with 11.8 per cent in December and 10.8 per cent a year ago.
Joblessness in the larger 27-nation European Union also rose, to 10.8 per cent compared with 10.7 per cent in December.
The figures mask a discrepancy among countries, from 4.9 per cent unemployment in Austria to 26 and 27 per cent in Spain and Greece respectively.
Officially, the region is in recession, meaning a major pillar of the world economy is contracting.
Frequently Asked Questions about this Article…
The article explains that the 'money returning' refers to short-term investments flowing back into the eurozone from US money market funds. These funds provide an important supply of dollars and short-term funding to eurozone banks, and Fitch Ratings found the top 10 US money market funds have nearly doubled their eurozone holdings since hitting a low last summer.
According to Fitch's research cited in the article, eurozone banks now account for 14.5% of the top fund holdings — nearly US$100 billion (about A$98 billion). The 10 firms analysed represent roughly 45% of the approximately US$1.5 trillion US money market pool.
The article notes a contrast: while short-term money-market flows have improved and eased some financial stress, the real economy hasn't recovered. The eurozone remains in recession and unemployment is rising, so the region still drags on global growth even if the immediate financial threat has lessened.
Eurostat reported that unemployment in the 17-nation eurozone rose to 11.9% in January, up from 11.8% in December and 10.8% a year earlier. Unemployment across the larger 27-nation European Union also ticked up to 10.8% from 10.7% in December.
Yes. The article highlights wide disparities: for example, Austria's unemployment was about 4.9%, while Spain and Greece faced much higher rates — around 26% and 27% respectively, underscoring uneven economic pain across countries.
The article warns the turnaround could reverse if political and policy problems re-emerge. It cites the confused results of a recent Italian election as a reminder that governments failing to deliver promised debt control and growth measures could worsen the situation again.
When large US money market funds withdrew from Europe in 2011, it worsened the problems faced by eurozone banks and contributed to fears of a possible break-up of the currency union. The article contrasts that flight with the more recent return of short-term US fund investments.
The article suggests caution: while money-market flows have eased financial strains and reduced the immediate threat to the global financial system, the eurozone's real economy remains in recession with rising unemployment. So improved financial flows don't yet mean a full economic recovery.
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