When there are no good news in short term let´s create them in the long term. This is definitely slogan of all politicians. European commission for example predicted very slow growth for the EU and 0.3 % contraction for the euro club. BUT we should expect better tomorrows as usually in the long term. The growth for 2014 is predicted on 1.6 % or 1.4 % for the euro club. I think that it is definitely clear that we cannot expect any improvements in the short term and the so called positive sentiment on the markets that everything is fixed up for now is strange for me. So what should we be careful? I think that especially Spain and Italy. Spain´s budget gap was 10.2 % of GDP in 2012 when the banks rescue program added to it another 3.2 % and it is still planned on 7.2 % of GDP in 2014 or more than 2 times bigger than it should be according to the Brussels’s rules. Spain debt to GDP ratio is also increasing and it hit 84 % of GDP or € 882 billion in nominal terms when Spain´s debt rose at € 400 million per day in 2012 and reached levels not seen within last 100 years. Spain´s banking sector is pretty hit by bad loans and for example the Bankia is expected to have € 19 billion loss the largest in the country’s corporate history.

The EU leaders are worried about Italy. It is an election weekend in the country. The possible victory of Silvio Berlusconi is understand as bad for the country because his possible government could cause uncertainty among investors due to his reluctance to any reforms which could cause problems for Italy to pay back its huge 120 % of GDP debt. And economic situation in country is also not very positive, e.g. Italian bad loans are soaring and loans to families and companies dropped by record amounts in January which indicates weak economic environment in the country.

And better situation is missing in other areas in the EU as well. One of the backbones of the European industry – car industry – has experienced the record low sales in January since 1990. Automobile car makers in the EU as Peugeot, Ford or Toyota were kicking off 2013 with 8.5 % decline in car sales. German automakers felt as well but the drop was not so significant as to other carmakers in the EU.

Moody’s Investors Service has downgraded the domestic – and foreign – currency government bond ratings of the United Kingdom by one notch to Aa1 from Aaa. The outlook on the ratings is now stable. The main reason behind are weak medium term growth outlook and weaknesses in the government fiscal consolidation program. Three members of Britain’s Monetary Policy Committee voted for extension of QE program from £40 billion to £400 billion which could cause the increase of inflation to 3 % and support the economic growth.

Is this best description of France working class behavior? “The French work force gets paid high wages but works only three hours. They get one hour for breaks and lunch, talk for three and work for three,” stated in the letter the CEO of the U.S. tire maker as the reason why he did not want to invest into the Titan tire making company based in France. The response to the letter came very soon and France government protected its way of doing thing of course. They stated that the decisive factors to invest in France are quality infrastructure, very favorable environment to research and innovation, and all companies know and appreciate the quality, productivity, commitment, knowledge, talent and skills of French workers. So the only question remains unanswered why the hell is France falling and not growing? Maybe answer from Mr. Maurice Taylor could help us. He states as a response to French government “You letter shows the extent to which your political class is out of touch with real world problems”. He also add “most businessmen would agree that I must be nuts to have the idea to spend millions of US dollars to buy a tire factory in France paying some of the highest wages in the world.”

And just a small remainder; Greece was hit “surprisingly” by another anti-austerity plan protests last week which means another day off or another day of falling its GDP.

The FED officials have remained divided on the future of the central bank’s bond buying program and some of them are asking to end the buying program much earlier than planned once the employment data will show as strong. But the FED is trapped in the trap. As Goldman Sachs emphasized without the program yields on 10 years treasuries will be higher about 1 – 1.25 % which could cause huge problems for the U.S. fiscal policy or in other to increase the federal expenditures. Suggestion of some FOMC members to vary the size of purchases from meeting to meeting is not appropriate monetary policy which should be clear and must give strong signals to market participants what the FED is willing to do. I think that one thing was crucial according to minutes of the January. Some officials started to realize that one day in the future the FED will need to sell its assets of more than $3 trillion allocated on its balance sheet.

Matus Posvanc