Two events happened today that I believe will define the week at the global level.
First, numerous media organizations have rushed to announce that the EU crisis is over following the release of statistics today by Eurostat saying that the EU is no longer in recession. After reading the numbers on growth, it seems that this may be the turning point — gross domestic product grew 0.3 percent in the second quarter of 2013 compared to the previous quarter, the first positive growth data for the eurozone since the third quarter of 2011. However, while the media showed optimism and this data will certainly help politicians in some European countries, the capital markets weren’t much impressed. This means that while investors may have retreated from the strong pessimism of the previous months, their disposition remains generally gloomy regarding to the eurozone crisis. The main reason for this relates to the structural problems that the EU economies still have, including the lack for credit for small- and medium-size companies, high unemployment and weak government finances.
However, the data released today indicates that there is hope for the European Union to fix things and to rediscover the European promise of prosperity through integration. The European crisis has long ceased to be a financial crisis, becoming instead an unemployment and political crisis. In this context, positive economic data will probably buy governments some time, but most eurozone members will keep dealing with the political consequences of high unemployment for the foreseeable future. Leaving aside the question related to the European Union and its future, the release today makes us wonder how the world will react to the potential turning point. On the Eurasian continent, it will be interesting to see how China and Russia receive the message sent today. The Balkan states are also likely to follow closely the winds of optimism coming from the European Union as well.
The second event of the day took place in the Middle East. Egyptian security forces launched an operation to clear Muslim Brotherhood protesters in Cairo. The military decided to act quickly against the Muslim Brotherhood, while it still had popular backing and while former president and Muslim Brotherhood leader Mohammed Morsi is still a prominent scapegoat for the array of security, economic and political problems afflicting Egypt. Since the morning, clashes between security forces and protesters have spread throughout the country and there are currently 14 provinces under curfew: Cairo, Giza, Alexandria, Qena, Suez, Beheira, Faiyum, Beni Suef, Minya, Asyut, Suhaj, North Sinai, South Sinai and Ismailia. Attention needs to be paid in particular to what happens in the country’s main port, Alexandria, in the next hours and days as an increase in unrest could negatively impact food and fuel distribution, something that may have dramatic consequences on the overall economy. On the same day this is happening in Egypt, the Israeli-Palestinian peace talks resumed in Jerusalem. The two events are very much linked in significance, as Israel tries to address its problem with the Palestinians while it can still count on the Egyptian military to help reinforce security on its side of the border.