Tuesday, September 20, 2011

Economy: Why Europe is Much Weaker Than the Rest Of The World

The European economies are in a mess. Growth in Germany, the UK, France and other countries is faltering at best. The media explain the European weakness is due to the high debts of the governments, shrinking public expenditures (aka austerity policies) and distrust of the banks. Maybe so.

But there is another reason: The price of oil. The European oil (known as Brent) is significantly more expensive than the US oil (called WTI or just "crude"). Since April the US oil price dropped from $114 into the $80`s, while the European oil prices stayed way above $100. Today Brent costs around $110, around 30% more than WTI. OPEC still calculates an oil price above $100, ignoring the lowered US oil-market (bloomberg.com ).

The media blame this price difference on the war in Libya. They tell us that Europe strongly depends upon oil deliveries from this Northern African country. Oil was scarce in Europe because the revolution in Libya stopped the production of oil there. Now as the war there comes to an end, the market is ignoring the peace process. Many pundits claim that it will take a long time before the Libyan oil production recovers, in spite of reports about a swift restart of the Libyan oil deliveries.

Anyway. The fact that European oil is much more expensive than the US oil explains - at least partially - why in Europe consumer demand & manufacturing are significantly weaker than in the rest of the world. Recently, we received news that retail revenues in the UK were shrinking again, partially because of high energy prices. Therefore the expensive Brent is slowing the European economy, adding to the woes of debts, austerity and general pessimism.

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