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Anorak | Your Eurozone crisis data point of the day – uncertainty kills us all

Your Eurozone crisis data point of the day – uncertainty kills us all

by | 7th, August 2012

IF the euro were to fall apart the longer term repercussions would almost certainly be positive. The Southern countries would be free of the straitjacket of being forced to try and act like Germans.

However, the getting from here to there is the difficult part. And as an example of quite how difficult it would be, here’s what Shell is doing right now:

Mr Henry is cited as saying that the Anglo-Dutch oil major would rather deposit $15bn of cash in non-European assets, such as US Treasuries and US bank accounts.

The firm is forced to keep some money in Europe to fund its operations, but is keeping the bulk of its reserve liquidity out of the eurozone to avoid growing macroeconomic risk, the report said.

They’re just not willing to keep their money in Europe where it might be left in a bank that will go “poof”, or in a currency that might disappear. This despite the fact that you get absolutely no interest in money in US $ at the moment.

But it gets worse:

The company’s chief financial officer, Simon Henry, told The Times newspaper that Shell is cutting back its exposure to European credit risk in the worst-hit economies and putting a higher price on doing business with the region’s peripheral nations.

“There’s been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit,” Mr Henry is quoted as saying.

This is just the larger problem writ small. Because they’re worried about the euro falling apart therefore they’re not willing to offer their customers credit. Just simple stuff, like a garage wanting a tanker of petrol and they’ll pay for it in 30 days. Now they’ve either got to pay Shell a higher price for taking that risk or they just don’t get the credit at all.

And it’s this which is hppening throughout the economy: it’s not just Shell doing this, it’s everyone, all companies and also all the banks.

That’s what’s causing the vast problems in Southern Europe. The entire economy is being starved of credit as a result of the uncertainty. Resolve the uncertainty, either way, and the economies will start to improve again.



Posted: 7th, August 2012 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink