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Economy in Brief

EU Indices Show Spreading Weakness
by Robert Brucsa  August 30, 2012

While Merkel and Monti and Merkel and Draghi fight over the role of the new bailout facility the euro-Zone continues to slip.

By now the whole of the e-zone is in a slide. The overall sentiment figures have slipped by roughly similar amounts since November 2007. Germany has dropped by 20.8 points, France by 22 Italy by 23.5. Falling by larger amounts are Greece (-30) and Portugal (-27). Falling by somewhat less are Spain -17.1 and the UK -16.1.

And some were weaker to start. As a result we find the various nations at different standings in their ranges and historic queues but the degree of recent slippage is roughly the same. Germany has the highest standing in its queue at the 34.8th percentile. That means the German sentiment index is weaker than this only 38% of the time. The next strongest reading is Belgium in its 18.6th percentile then Austria in its 17th percentile. The weakest are Italy followed by Portugal, Greece and Spain, all are below the bottom 10% of their respective queues- and are rarely weaker than they are in August.

We find the e-zone is battling over table scraps instead of confronting the real issues straight on. In formulating the fight over the ESM and whether it should have a banking license or not, the fight becomes one of how much financing will be able to be done at the discretion of the fund.

The real issue that the EMU leaders should be grappling with is weather they can save the Zone and how they would restore competitiveness among nations without a currency depreciation which would be a Zone-buster. Once it had a workable plan it would be able to work out financing requirements. But since there is no plan and no arrangement on how anyone who has lost major competitiveness could ever stay in the Zone, the argument over financing is simply between those who are struggling and those who do not want to shovel funds into a black hole.

Europe really needs A PLAN. Spain, Portugal, Ireland and Greece and even the Italy need a plan that will take them to a sustainable position in EMU. Without it, there can only be bickering. Greece has such a long way to go to restore its competitiveness- can it really get there? Samaras says Greece wants to stay in EMU but does it want to stay badly enough to pay the price? Is there a real plan apart from some set of deficit targets? Does anyone have any idea how much sacrifice it will take to keep these countries in EMU given the competiveness they have lost? Moreover that is quite apart from the financial help they may need in the meantime. Fixing lost competitiveness within a fixed currency zone is not an easy job.

The Zone’s problems are now bringing all members down. I can understand Merkel’s desire to limit German exposure to nations that are not making progress toward sustainability. But without a plan there is no way to tell if the extra monies you give someone is help toward a sustainable Zone or just more money thrown down a black hole where progress is not being made. Budget deficit targets are not useful in a recession and they will continue to be sequentially missed. It’s why the argument over the ESM is no more than petty bickering. Even if the ESM were the BIG BAZOOKA what is the point in firing it unless it has enough ammunition? And without a plan there would never be enough ammunition. Until competitiveness is restored the lagging countries will continue to be drains on the system.

EU Sectors and Country level Overall Sentiment
EU Aug
12
Jul
12
Jun
12
May
12
%ile Rank Max Min Range Mean By Q
rank%
Overall Index 87 89 90.4 90.4 40.8 224 117 67 50 100 11.5%
Industrial -14.5 -12.8 -12.1 -11.3 52.6 212 7 -39 46 -7 16.2%
Consumer Confid -22.7 -20.2 -19.7 -19.4 28.1 229 2 -32 34 -12 9.5%
Retail -13.5 -10.3 -10 -14.6 38.7 217 8 -27 34 -7 14.2%
Construction -35 -32 -31 -33 22.0 219 4 -46 50 -19 13.4%
Services -11.4 -10.4 -7.3 -6.2 31.5 162 34 -32 66 8 15.2%
  % M/M Aug-12 Based on Level Level  
EMU -2.0% -2.2% -0.7% 86.1 34.8 225 118 69 49 99 11.1%
Germany -1.0% -3.7% -1.4% 95.8 52.7 165 117 73 44 99 34.8%
France 0.4% -2.8% -1.7% 89.5 34.9 211 117 75 43 100 16.6%
Italy -3.0% 1.6% 1.1% 78.6 12.9 241 121 72 48 99 4.7%
Spain -5.6% -1.6% 1.1% 82.8 24.3 231 116 72 43 100 8.7%
Greece 1.2% 2.7% -2.5% 77.0 11.3 235 119 72 48 99 7.1%
Portugal 3.5% -1.9% 1.2% 79.1 17.5 236 117 71 46 99 6.7%
Austria -3.7% -2.1% -3.4% 91.2 45.8 210 116 70 46 99 17.0%
Belgium -1.3% 1.9% -1.5% 91.0 45.0 206 116 71 45 99 18.6%
Finland -1.8% -2.1% -2.4% 90.7 35.4 215 120 75 45 101 15.0%
Netherlands 0.7% 0.7% -0.3% 87.6 41.3 215 116 67 49 100 15.0%
Memo:UK -3.3% 1.8% 2.1% 91.5 52.5 218 116 64 52 101 13.8%
All since June 1990 253-Count Services: 191-Count  
Sentiment is an index, sector readings are net balance diffusion measures
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