Rumbles of Trouble in the Eurozone; Federal Deficit Shrinking

Late last week trouble in the eurozone arose when Portugal halted trade in Banco Espirito Santo.

It’s been a while since the eurozone crisis rumbled loud enough to bother investors around the world, but late last week Portugal halted trade in Banco Espirito Santo, which is the banking arm of one of that country’s largest conglomerate, with regulators citing “irregularities” in its accounts and asserting that it’s in “serious financial condition.” Apparently that spooked investors in a lot of places, sending 10-year Treasuries to their lowest level – 2.5 percent – in more than six weeks.

On the whole, the eurozone economy has been muddling along since the last outbreak of the crisis. Eurostat, the statistics bureau of the European Union, reported recently that the unemployment rate in the eurozone (18 countries) was 11.6 percent in May, stable when compared with April, and down a bit from 12 percent a year ago. In the EU as a whole (28 countries), unemployment was 10.3 percent in May, down from 10.4 percent the previous month, and 10.9 percent the previous year. Better, but not terrific.

The employment patterns in the member states are pretty much the same as they’ve been since the recovery from the worldwide recession in the late 2000s. According to Eurostat, the lowest unemployment rates in May 2014 were in Austria (4.7 percent), Germany (5.1 percent) and Malta (5.7 percent), while the highest rates were in Greece (26.8 percent in March 2014) and Spain (25.1 percent).

The agency also reported that GDP rose by 0.2 percent in the eurozone and by 0.3 percent in the EU during the first quarter of 2014, compared with the previous quarter, according to the agnecy’s third and final estimates. In the fourth quarter of 2013, growth rates were 0.3 percent and 0.4 percent, respectively.

Federal Deficit Continues to Shrink 

Nine months into the government’s fiscal year, the federal deficit is $365.9 billion for that period, down 28 percent from the same period last year, the U.S. Department of the Treasury reported on Friday. Higher tax receipts, up 8.2 percent since this time last year, proved to be the main factor, but lower defense spending, down 5.5 percent year over year, was also important.

For June alone, the government posted a surplus of $70.5 billion, partly because of the cycle of tax collection, but also because of a one-time payment to the government from Fannie Mae. The GSE, under the terms of its conservatorship, turns its profit over to the government.

In April, the Congressional Budget Office forecast a $492 billion deficit for fiscal 2014 (which ends Sept. 30). That’s equal to about 2.8 percent of U.S. GDP, which would made it the smallest deficit since 2007. Since 1980, the deficit has averaged about 3.2 percent of GDP each year.

Wall Street had a modest up day on Friday, with the Dow Jones Industrial Average up 28.74 points, or 0.17 percent. The S&P 500 gained 0.14 percent and the Nasdaq advanced 0.44 percent.