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Economy in Brief

EMU Indices Show Some Slowing in Unravel
by Robert Brusca  January 30, 2012

The EU commission indices provide some perspective on Europe’s unraveling and embattled economy. For now the relentless erosion has abated but pressure remains and adverse dynamics are still in force.

The overall EU index rose this month for only the second time in 12 months. Its level leaves it weak in its queue of ordered vales as its ranking percentile stands in the eighteenth percentile (bottom one-fifth) of its historic queue. The EMU index is similarly weak in the 21st percentile of tis queue. Both are aided substantially by German’s presence, as Germany is the largest EMU member whose country weight adds the most to EMU and EU metrics- and Germany stand strong compared to the rest of the Zone

Germany is by far the best euro-performer The German country reading stands in the 76th percentile of its range, a top one-quarter reading. Other large EMU nations like France and Italy stand in the 21st percentile and 9th percentile, respectively, of their ordered queues. On balance there is Germany and then there is the rest of EMU.

In January the readings for France and Italy slipped; Italy has been sliding hard in the last few months when the rest of the Zone has been stabilizing. Greece also turned lower after several months of increases in its index. Greece’s fate one again hangs in the balance.

Among the five major index readings, four of them improved this month. The largest improvement came from the services sector whose move from -6 to -3 is the 15th largest improvement on record for the sector. The industrial sector, construction sector and consumer confidence reading each improved by a single point. Deteriorating on the month was retailing which fell from -11 to -14, an outsized drop for that sector. Retailing and consumer confidence are the two sectors with the lowest queue standings in the Zone at percentile metrics below their respective 15th percentiles.

All countries remain short of their pre downturn cycle peaks. Germany’s overall reading shows it is at 64% of is cycle peak while Spain is clinging to 48% of its cycle peak. France is only at 19% and Italy at nearly 13%. Zone members continue to languish at levels well below their respective peaks. But the downward momentum in the Zone has abated for now.

The Greek situation is under discussion at the current EU meetings. Germany this weekend tried a heavy-handed approach to force Greece to give up some if its budget sovereignty. Greece refused to have its arm twisted and was angered by the request. In Davos they took straw vote among the denizens of Davos; that enlightened group continues to look for the Euro’s survival, at least for now.

But with Germans treading over the line of national sovereignty to try and get the discipline it seeks to lend Greece more funds we can see that the euro’s days are numbered. Countries cannot survive in a unit like EMU without trust. The Greeks have violated that trust and we can see that the Germans, at least, have not decided to let bygones be bygones. This is a vexing problem that will continue to haunt Greece and Germany and the Zone. The Greeks aren’t the only ones with budget issues.

Zone dynamics are in a new phase Sarkozy and Merkel, once antagonists, are finding Merkel ‘backing’ Sarkozy’s re-election bid even though he is well behind in his polls.

Euro politics are still in a tizzy. Ireland may push for a vote on any modification of the treaty and some important modifications are being sought to close the fiscal loopholes. Ireland already has made the biggest contribution to euro stability of any EMU member by rolling and undertaking its banking system’s debts. Its memory is long, too.

EU Sectors and Country level Overall Sentiment
EU Jan
%ile Rank Max Min Range Mean By Q
Overall Index 92.8 91.6 92.6 93.6 52.4 207 117 67 50 100 18.2%
Industrial -7 -8 -8 -7 69.6 125 7 -39 46 -7 50.6%
Consumer Confid -21 -22 -21 -21 32.4 221 2 -32 34 -12 12.6%
Retail -14 -11 -13 -12 37.1 219 8 -27 35 -7 13.4%
Construction -31 -32 -29 -29 30.0 189 4 -46 50 -19 25.3%
Services -3 -6 -5 -3 43.9 137 34 -32 66 9 25.5%
  % M/M Jan-12 Based on Level Level  
EMU 0.6% -0.7% -1.0% 93.4 49.8 199 118 69 49 100 21.3%
Germany 2.2% 1.0% -0.2% 106.6 76.4 60 117 73 45 99 76.3%
France -2.2% 0.2% -3.6% 91.4 39.3 199 117 75 43 100 21.3%
Italy -1.3% -5.8% 1.2% 84.3 24.7 230 121 72 48 100 9.1%
Spain 2.0% -1.4% 0.2% 92.2 46.1 202 116 72 43 100 20.2%
Greece -1.1% 2.3% 1.4% 74.9 6.9 247 119 72 48 100 2.4%
Portugal 1.5% 0.9% -7.9% 75.7 10.0 248 117 71 46 100 2.0%
Memo:UK 5.6% -0.7% -0.7% 93.6 56.6 206 116 64 52 100 18.6%
All since June 1990 253 - Count Services: 184 -Count  
Sentiment is an index, sector readings are net balance diffusion measures  
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