We first want to wish you a Merry Christmas and Happy Holidays!There are so many financial stories from 2012 but one has trumped all in the eyes of the financial markets. It has been a year when Central Banks around the globe have printed an unprecedented amount of money. As you can see since 2008, Central Banks balance sheets have exploded. This truly is an economic experiment since we have never seen this level of Central Bank intervention before. This year the stock market has paid little attention to a struggling jobs market, weak economic growth and declining earnings expectations and has rallied on the surge of money in the system.
The financial markets have paid little attention to the European debt crisis of late, due in large part to the European Central Bank's aggressive money printing. However, as we have repeatedly pointed out nothing has been "fixed" in Europe.
First up, European GDP has tended to track US GDP growth, but there has been a wide divergence in the past year. The US has slowly recovered while Europe continues to contract.
Source: Kit Juckes, Societe General
Next up is a chart of GDP growth in the large Euro countries. Notice while Germany continues to grow, Italy and Spain continue to deteriorate. All of the money printing by the ECB can temporarily deflect attention from Italy and Spain but unless these countries change course and pursue policies to stimulate growth the crisis will return.
Source: Laurence Boone, Chief European Economist BoA Merrill Lynch
Lastly, Europeans support of the Euro has dropped from over 80% to 53%. If this trend continues it will be problematic for European leaders, who are trying to solve the crisis..
Source: Nomura Securities