E This Land Is Your Land

The Eurozone is suffering from restricted growth according to the European Commission which now forecasts that 2014 growth will be 0.8% overall for the 18 countries in the currency bloc. This is well below the earlier forecast of 1.2% growth, which was already low.

Things will not improve much next year. The Commission now expects 1.1% growth in 2015, vs an earlier prediction of 1.7%. This means that unemployment will not fall because nobody will be hiring the jobless. It also means a very low inflation risk.

The worst performers among the big EU countries are France and Italy, being forced by Germany (acting through the EU) to cut their deficits. This means they must raise taxes or cut government spending which puts a brake on recovery.

There are a couple of lessons from the lowball forecasts. Firstly, European malaise is not total. There are outlier countries which do not use the euro and which may be able to pursue growth policies despite the anti-deficit line. So they are better places to invest in as their company profits will grow without being trapped by the common currency and the demands of budget-balancers.

The obvious examples are Britain, Sweden, and Switzerland. Norway would be another but for its dependence on oil exports which are going to be hurt in both volume and price by the lagging economies of its neighbors.

Another lesson is that picking good companies is more important in stock performance than currency or growth trends. Macro-economics uses too broad a brush for seeking growth stocks, which exist even in stagnant economies.

A final lesson is that this too shall pass. Given the role of Germany (and to a lesser extent other advocates of fiscal orthodoxy like Finland or Holland), their own economic woes will probably override their ideology. With the risk of recession even in Europe's largest economy now clear, I expect that German politicians, with Angela Merkel in the lead, will shift gears and decide to invest more than tax receipts produce, in green energy, in infrastructure and repairs on the Autobahn, in defence, in housing subsidies, in all-day schools, and unemployment benefits. These modern and traditional German ways to stimulate the economy will also eventually help its neighbors.

A factor that nobody likes to consider is how well Britain is doing with its go-it-alone stimulus and quantitative easing. So successful has the UK program been that it is now being billed for a special fund because its growth exceeded Brussels estimates, which is causing a political flap.

The UK has been demanding special exclusions from Brussels levies since Margaret Thatcher was Prime Minister, and David Cameron is following in her footsteps even though he does't carry a handbag.

With the flaky UK Independence Party threatening the Tories on the right, Cameron has to show toughness to European bureaucrats to keep power and to eventually win a referendum on British exit from the EU. Hence he is channelling Maggie Thatcher, also in calling for limits on the free movement of people within the EU, a violation of one of its founding principles. However, what with Muslim terrorists taking advantage of their rights under the Schengen accord to hop across borders to commit atrocities or to go off to fight with ISIS in the Middle East without hitting passport controls, some of the Cameron program may wind up being accepted by the EU as a whole before too long.

There is a special reason explained for paid subscribers below why I am singing “This Land is Your Land” as I toddle off to vote.

More news from Spain, The Netherlands, Canada, Singapore, Israel, Britain, Mexico, Australia, New Zealand, Korea, and Japan.

*Banco Santander this morning reported a 52% rise in Q3 profits vs prior year, at euros 1.61 bn (~$2 bn). This handily beat analyst forecasts the first time Executive Chairwoman Ana Patricia Botin gave the results in credible English as well as Spanish. Ms Botin controversially took over after her father, Emilio Botin, who had turned SAN from a provincial bank into a global powerhouse, died in Sept.

The key driver of profits was Spanish recovery from the global financial crisis where earnings more than tripled to euros 3.09 mn. Economic recoveryh allowed SAN to cut its provisions for defaulted and delinquent loans by 8% to euros 2.78 bn which fed right into the bottom line. SAN's nonperfomrning loan rate fell 17 basis points to 5.28% from Q2.

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