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UN warns about 2nd wave of European crisis. Was George Soros right?

UN warns about 2nd wave of European crisis

The EU countries – France, Italy, Germany, Romania, Estonia and others – welcomed the World Bank’s report called “World Economic Situation and Prospects 2011”, predicting a stable (but less active than in 2010) growth of the global economy at the level of 3.3%.

Against the optimistic report made by the WB, the UNCTAD expressed serious concerns over the future situation in Europe in 2011, being afraid of a new cycle of the EU economic crisis. If it happens the crisis will affect other countries all around the world. 


What does the UNCTAD forecast in its report?

 Masterforex-V Academy experts note that the UNCTAD report called “World Economic Situation and Prospects 2011” contains the following info:

·         Europe is under the threat of facing an economic slowdown. According to the UNCTAD experts currently there is a big gap between the EU economies: Germany shows a 3.4% growth of the GDP while Ireland, Greece Spain and Portugal are on the verge of default. In order to save the common Euro currency from collapse, the more powerful EU countries should help their fellows in need.

·         The situation in Spain may serve as an example, when the EU’s financial institutions and powers were quick enough to support Spain. However it is only a temporary solution.


What is the major threat for the EU? What does George Soros advise?


The major threat of the 2nd wave of the European crisis, according to Soros, is the fact that while combating the crisis almost all the EU members increased their sovereign debts:
·         The share of the national GDPs allocated for maintaining the debts was doubled. In order to make up for the extra budget spending the governments have to implement unpopular austerity measures, including tax hikes, spending reduction, which reduces the domestic consumption.
·         The reduction of the domestic demand leads to a slowdown in the growth of the national economies, causing recession in some sectors.
·         The report says: “Assuming continued, albeit moderate, recovery in Germany, GDP growth in the euro area is forecast to virtually stagnate at 1.3 per cent in 2011 and 1.7 per cent in 2012 (growth in 2010 was 1.6per cent). Many European countries will see even less growth, especially those in which drastic fiscal cuts and continued high unemployment rates are draining domestic demand”.
The UNCTAD report will probably chill many hotheads saying that the economies have finally overcome the crisis:
·         Last year George Soros, odious but respected in financial circles, warned everybody that “the crisis isn’t over yet”.
·         He said that the sovereign debt problems would start undermining the stability of all the financial markets while the entire world would feel the problem of Euro. When the economy is weak banks cannot boast fiscal honesty.
·         Not long ago George Soros recommended the EU how to overcome the crisis. Market Leader wrote about it in the article called “George Soros knows how the Euro-zone can overcome the crisis?”
If the 2nd wave of the global economic crisis hits Europe it will inevitably reach Russia as well:
·         In November 2010 German Gref, President of the Sberbank (Russia), said that the crisis still takes place in the global economy
·         He is convinced that it is impossible to say that the crisis is over as the causes of the global economic downfall are not eliminated. The existing excessive market liquidity was seen in 2007-2008 (right before the crisis). Moreover, states privatize private debts, and it makes the situation even worse. So the threat remains, Mr. Gref warns.
Russia in the UNCTAD report.
According to the UNCTAD report, Russia is dependent on the energy sector, which is dangerous for it:
·         Russia sells energy carriers for US dollars and if Euro is unstable the oil and gas prices for Russia’s European partners will grow significantly. A decline in Russia’s income gained from exporting energy carriers will automatically initiate a slowdown in other economic sectors.
·         It should also be noted that the Russian economy desperately needs foreign investments. If there is an unfavorable scenario going on in the Russian economy the foreign investment inflows will run out.
·         It should be reminded that according to the UNCTAD report for 2010, the Russian Federation was among the 5 most attractive countries in terms of direct foreign investments, yielding only to China, India, Brazil and USA.
·         According to the UNCTAD report for 2011, the volume of direct foreign investments in 2011 is expected to make up $1.3-1.5 trillion while in 2012 it may reach $1.6-2 trillion.

According to Masterforex-V Academy experts, it is necessary to get ready for crises instead of waiting for them. National economies need emergency measures in the form radical structural reforms and economic diversification. Otherwise the consequences of the crisis will be more and more painful.
EURUSD: where will the mid-term trend go?
EURUSD is currently deciding on the direction of further mid-term trend. According to experts from the department of studying Masterforex-V trading system , by now the currency pair has completed the bearish wave of level D3-4 and is retracing against it. $1.4281 is expected to be a strong resistance level. On breaking above it Euro will keep recovering in the form of a W2 momentum. Once 1.2874, the low of 2011, is overcome, the European currency will keep declining in value.





Market Leader and the leading experts of Masterforex-V Academy conduct a survey:
Do you think the UNCTAD experts’ opinion should be trusted?
·         Yes, it should. This is a competent organization, so they know what they say
·         No. it shouldn’t. It is George Soros who should be trusted.



You are free to discuss this article here:   forum for traders and investors


Text: Alexander Dynnichenko
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