The European Unemployment Map

Yesterday I compared Italy and Spain, and noted that when it comes to unemployment the worst regions in Italy have roughly the same unemployment rate as the best regions in Spain. This led me on to making this map (using data from Eurostat) to show unemployment rates for all EU and EES regions

The map gives some hints about where there might be problems - the unemployed who have debts have more difficulties keeping up with their loan payments - the unemployed don't pay very much in taxes and thus don't contribute to the government coffers - the unemployed are rather more prone to engage in activities such as social unrest.

The biggest problem is obviously in Spain, which stands out like a sore thumb! Greece has nearly the same level of unemployment, but Spain is much larger. Add to this the fact that the Spaniards are up to their ears in debt after the popping of their monumental real estate bubble...

It's also interesting to see how unemployment often does not follow national borders. Northern Italy, for example, seems to have more in common with the German-speaking area of Europe than with southern Italy. Sometimes, however, the national borders make a big difference, e.g. between Spain and Portugal.

Also note that France looks a lot more like the central part of Italy than it looks like Germany when it comes to unemployment. Bienvenue au club PIIGSF, monsieur Hollande!

The difference in Germany between former East Germany and West Germany is still clearly visible, as the east still hasn't caught up with the west.

Another striking difference is that between Czechia and Slovakia, where Czechia looks like Germany, but Slovakia (except the Bratislava region) has a high unemployment rate that increases towards the east.

This is a translation of a post from my Swedish blog.

Swedish Housing Still a Bubble

My view is still that Sweden is in a housing bubble, like most western European countries. Signature "ju" asked me on a forum why I don't compare to incomes, which have risen in Sweden over the last years. So I did some more number crunching, and here's an improved version of my Swedish housing bubble graph, with a green line for inflation adjusted mean income. I've also included housing price data up to Q2 2007 and trend lines (thanks to "Kons" for suggesting trend lines).
(Data source SCB. FPI=Fastighetsprisindex småhus, Mean Income=Sammanräknad förvärvsinkomst. 1975=100 for housing prices, 1999=100 for incomes)
As you can clearly see, housing prices in Sweden have risen much faster than the average income (I only have income data for 1991-2005), so while inflation-adjusted incomes have indeed risen, we are still in a housing bubble. How far will housing prices fall?

• A fall down to the trend line is about 30%.
• A fall down to the average for 1975-2003 is about 45%.
• A fall down to the lows of the early 1990's is about 55%.

This is the whole of Sweden, and obviously the bubble is worse in "hot" housing spots. So I've made a corresponding graph for housing prices in the Stockholm area (thanks to "Kons" for suggesting this).
As you can see the graph is slightly more "bubblish" than for the whole of Sweden.

• A fall to the trend line is about 30%
• A fall to the average for 1975-2003 is about 55%
• A fall to the lows of the early 1990's is about 65%!!

Many people will of course say "it can never happen, there will always be a strong demand for housing in our capital city", but I boldly predict today that inflation-adjusted housing prices in Stockholm will probably on average go down by 65% over the next few years. Be warned, and don't forget where you heard it first. And I might even be optimistic. Considering the excesses on the upside, we could very well have similar excesses to the downside when the bubble finally bursts. And if you don't believe it could happen, don't forget that history has proved that all bubbles eventually burst, even though few believe it is possible when on the upward slope of the bubble.

Now housing bubbles burst slowly, so the process will take a few years to play out. I expect "experts" to call a bottom in housing many times during the coming years, but prices will still keep on falling.

Now what effects will such a large fall in housing prices have on the economy? Large effects, of course. Many people will be stuck with loans way bigger than the value of their home. But maybe we should ask the question the other way around - what economic events could trigger such a large fall in housing prices? Read what I have previously written on this blog about potential dangers in the world economy, and you will get some hints about what might cause such a powerful recession.

Speaking of housing bubbles, the top economic advisor of the Spanish prime minister came up with some unbelievable quotes last week:

A residential real estate slump in Spain, where prices have almost tripled since 1997, is "unthinkable," the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said. [...]
"To talk about severe adjustments or a meltdown in prices is ridiculous," Taguas said in response to reports pointing to an end of the Spanish real estate boom. "That sort of crisis is unthinkable." [...]
The Spanish banking system is also solid enough to withstand rising financing costs triggered by the fallout from the surge in defaults in the U.S. subprime mortgage market. A run on mortgage- lenders such as Newcastle, U.K.-based Northern Rock Plc or funding difficulties like those at Countrywide Financial Corp. in the U.S. are "unthinkable" in Spain, Taguas said.

Remember those quotes and remind Mr. Taguas about them in a few years' time!