European Economies: France Contracts, Extending Europe's Slump

Aug. 20 (Bloomberg) -- France's economy, Europe's third largest, contracted in the second quarter as the dollar's drop stifled exports and consumer spending fell, pushing the economy of the 12 nations sharing the euro to the brink of recession.

Gross domestic product in France shrank 0.3 percent, state statistics office Insee said in Paris. The slump means the euro region's $8 trillion economy probably contracted for only the second time since the currency was introduced in 1999, an official at the European Union statistics office said.

Oddly enough, Spain, our ally, has been doing quite well and its economy is expected to grow this year. Spain has had its problems over the last few years in transiting from a heavily statist economy to a more flexible, freer model, but it's achieved a lot and I think the project is finally paying off.

One reads this with a grain of salt. This article mentions recession for Germany, The Netherlands and Italy, yet follows with France's economy has outpaced the euro region average since 1997, with GDP growth of 1.2 percent last year compared with 0.2 percent in Germany and 0.4 percent in Italy. Consumer spending, boosted by tax cuts as France's government breached EU deficit limits, shored up growth in 2002 and in the first quarter. Therefore, one must understand that the the US, also mentioned with 2.4% GDP growth is actually 1% people and 1.4% government spending.... It is prudent to understand that the European economies are actually inflated by a factor of approximately 4% government spending!

The Euro is the first of 3-5 regional currencies. The debut of the "American Dollar" is set for 2005???, but at any rate the "investment" in the Euro makes it crucial that these economies and the currency itself are seem as profitable. The pitfalls for the investor is stocks or holder of currencies (you and me) is that we have no control of the shell-game being played with the figures, the currency values or the economies as reported by the banks and governments. Just beware that in true terms investors understand, the world is in a recession and only the US is growing at a sustained rate beyond government spending - but for how long.

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