Eurostat, the European Union statistical information service released this week a report saying that GDP increased by 0.8% in both Euro Area and the EU27 during the first quarter of 2011, compared with the previous quarter. In 2010, growth rates were +0,3% in the Euro area and +0.2% in the EU27*.
But, when we look the details at the data, it's possible to see some problems around Europe. Here are some GDP data in some countries:
Portugal: -0.7%
Spain: 0.3%
Ireland: N/D
Greece: 0.8%
Still on Eurostat website we can take a look at the some Long-Term Government Bond Yields:
In spite of Greece had a significant growth in this quarter, the country long-term bond yield is still increasing and it is happening with Portugal as well. Greece is at a difficult situation right now due to 2 main problems. One, how can a country have more austerity if it have to pay almost 13% for an investor (not counting other expenses)? Second, How can a country pay its bills if the economic outlook is now not one of the most attractive? Why do I say that? Jean-Claude Trichet gave signals that may have a rate hike around June. When interest rates goes up, it slows down the economy and it means less economic activity, afecting Greece and Portugal directly.
We can see at the EUR/USD chart below that this announcement has made euro slide against dollar:
So, if the EUR is getting weak, it means US dollar is getting stronger. In an appreciating dollar environment, issuance of yankee bonds will increase as issuers take advantage of the dollar's increasing purchasing power. Yankee bonds are bonds issued by international companies and sold in the United States.
*EU-27: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.
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