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After much huffing and puffing from the big bad speculators, the PIIGS house did not blow down, strengthened as it was by the promised erection of brick walls with funds from the European Central Bank.
You will recall that the acronym for Portugal, Italy, Ireland, Greece and Spain was much bandied about in dealing rooms at the peak of the eurozone crisis last year But a few choice words from a central banker won't stop the cruel banter. There are new acronyms, according to Gillian Tett, a writer at the Financial Times, including FISH, which wraps up France, Italy, Spain and Holland. The worrying hint is that the crisis that started in the periphery states is worming its way into the heart of the eurozone.
We know about Spain's catastrophic unemployment rate and Italy's continuing stagnation, banking problems and dysfunctional politics. We are now beginning to appreciate the depth of France's malaise. The economy contracted in the fourth quarter and more shrinkage is expected in the first three months of this year with layoffs from big employers, such as Peugeot-Citroen and Renault and the tax increases imposed by the new Socialist government which will crimp spending and investment.
Even the great state enterprises are cutting their cloth; EDF, the power utility is scrapping plans to raise its investment levels. More worrying still for the economy is the hint that the utility will be getting its long-awaited tariff increases, suggesting higher energy bills for French consumers. Meanwhile the French president, Francois Hollande faces the biggest challenge of all, tackling a state pension deficit which reached €14-billion ($18.7-billion) in 2011 and is expected to rise to more than €20-billion in 2017.
There were riots on the streets when his predecessor, Nicolas Sarkozy, dared to raise the retirement age, but it's not enough. President Hollande may be forced to break the inflation-linkage, ending France's gold-plated retirement system. It raises the prospect of a bruising confrontation with unions.
Holland seems an unlikely candidate for trouble. However, the Netherlands fell back into recession in the final quarter and the European Commission is worried about a Dutch housing bubble rebounding on the banks. As befits the Netherlands, the Dutch real estate market is underwater, with many homeowners supporting mortgage debt which exceeds house values. Dutch households have one of the highest rates of real estate leverage in the EU but they are also big savers and the pension system is well-funded.
If we are looking at the heart of Europe, perhaps we should focus on Belgium, which also suffered a GDP contraction in the fourth quarter. Belgium's public debt is huge, equal to the size of the economy and the country is burdened with the bailout of Dexia, the troubled bank. The guarantees represent 11 per cent of GDP and could rise if the economy deteriorates. But the real issue for Belgium is its fractured politics; a stand-off between the Flemish and French-speaking political parties left the country without a goverment for a year. Add to that, cutbacks in the European institutions – which are a honeypot for Brussels and Belgium – may not be spared. We could then speak not of FISH but of FIBS, English slang for lies. But that would be an Anglo-Saxon outrage.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.