Optimism over Europe may be overdone

Optimism over Europe may be overdone
Private schools teachers demonstrate to protest against wages cuts and the government's austerity measures on October 15, 2013 in Athens, as part of a 24-hours strike.

John Paulson is not a man easily ignored - the hedge fund manager became a billionaire after accurately predicting the 2007 US sub-prime mortgage crash.

So, when Mr Paulson recently announced that he was taking "a substantial stake" in - of all things - Greek banks, the global investment community rushed to the only obvious conclusion: if Greece, the weakest economy in the euro zone single currency market, is now praised by Mr Paulson for being run by a "very favourable, pro-business government", then Europe's long drawn-out financial crisis must surely be over.

In similar vein, Mr Carsten Brzeski, chief economist at the ING bank giant, predicted in a note to clients: "Germany's economy staged an impressive growth comeback in the second quarter, which should be sufficient to have pushed the entire euro zone out of the recession."

The belief that Europe has emerged from its deepest recession since World War II is certainly growing. But optimism can be overdone.

First, it's worth remembering that most of the upbeat talk is not about truly good statistics, but about less bad ones. So, Spain's gross domestic product appears to be heading for a drop of "only 0.1 per cent for the rest of this year" - this is hailed by European officials as proof that the recession is "bottoming out".

Secondly, anyone who lives or travels through Europe is likely to have a less sanguine outlook than upbeat business analysts.

Most tourists visiting Spain are impressed by its beauty and its still passable transport infrastructure - a legacy of the boom years of the 1990s.

But the palm-fringed coastal towns of the Costa del Sol on the Mediterranean are dotted with abandoned construction sites, with holiday homes nobody wants, even though asking prices have halved. Many of these sites are now inhabited by gypsy migrants from Eastern Europe.

Outside Atocha railway station in Madrid, the pride of Spain's high-speed train system, hundreds of youngsters sleep rough. The station's toilet operator, a company which goes by the splendid name of "2theloo" recently announced that it would charge for its facilities, partly in order to keep street tramps out.

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