Euro Deflation

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Negative Interest Rates?

This chart mashup shows the Euro Zone experiencing sudden price deflation since 2012 along with negative momentum in loan creation to the non-financial sector. Business, Industry AND Labour have no pricing power and as a result, balance sheet repair (reducing debt, increasing assets) is de rigueur in Euroland.

The European Central Bank Governing Council member Ardo Hansson said "...the ECB stands ready to cut borrowing costs further and is technically prepared to make its deposit rate negative; charging banks to hold their excess cash at the ECB in an effort to spur them to lend it to households and companies." (Bloomberg)

Unfortunately that's not the way it works. Banks lend to credit worthy customers who want to leverage debt to grow their business. If the household sector is not spending, then the business sector has less income and no incentive to expand.

As mentioned in the previous post last week (Beveridge Curve) Canada is busy giving up national and local jurisdiction in secretive attempts to join new trade agreements with pan Pacific trading partners via TPP (Trans Pacific Partnership). The European equivalent is CETA (Comprehensive Economic and Trade Agreement) with the Euro Zone. According to Rabble ...

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...The European Commission wanted a way to win more public contracts for EU-based multinational companies, including construction, public infrastructure and engineering firms. 

The solution, which is hidden in CETA’s procurement chapter, is to permanently block all levels of government in Canada from preferring Canadian or local companies, and make it illegal to ask bidding companies from Canada or the EU to make sure a portion of goods, services or labour used to fulfil public contracts is sourced locally.

If you are a Canadian business operating in Canada and want to bid on contracts in Canada, you will eventually have to bid against all the low cost industrial and service companies in Europe, Asia, North America etal. If you are Canadian Labour, I suggest you keep retraining as time permits to the highest skill level you can accomplish because the competitive job pool in Canada is going to expand dramatically.