EMU Money and Credit Growth Remain Weak As 'Success' Stalks EMU

Money and credit growth in the EMU area remain weak. There is a slight firming to trends in April but I emphasize the word 'slight.' There is no trend change and nothing to stoke new hopes or confidences. With the Italian crisis boiling over, Europe is more likely to begin to harbor new concerns rather than to restart its past momentum. In new data released today, confidence in Italy fell in May to a 9-month low. In France, the INSEE reading on consumer confidence in May is established and stuck at is historic average.

EMU trends show slipping money growth and more or less steady credit growth. In real terms, EMU money growth is halved over three months compared to 12 months. Private credit balances are weaker in nominal terms but slightly stronger when inflation adjusted. But the growth rates themselves all are low. Credit and money growth in the EMU remain weak whatever the monthly twitching shows.

Money growth trends elsewhere in key money center countries show growth rates in various patterns of slowing except in Japan where stable (nominal growth) to slightly faster (real growth) trends are being maintained. There is not much on the money or credit front to give rise to optimism about growth prospects.

Money growth in the U.K. has begun to slow sharply. U.K. economic data have also begun to offer an irregular heartbeat. Japan's GDP logged negative growth in Q1. In the U.S., the Fed, on a run of rate increases, has tried to deflect the idea that its policy is creating difficult issues in emerging markets and elsewhere. But suddenly this tumult in Italy is driving new exchange rate paths and as the dollar's rise raises commodity costs since commodities are priced in dollars. But the financial turbulence for Italy and the EMU has been transmitted to the U.S. too where the stocks are down sharply and the bellwether 10-year note yield that once was surging above 3% and looking to set new technical benchmarks to the upside is back below 3%. Is there enough in play to make the Fed rethink its policy path, there? Or does the Fed feel it is committed?

In fact, there is too much in play to be certain what will happen next - anywhere. Trump is still pressing for change on the trade front. U.S.-China trade tensions seem to have been diffused for the moment. North Korea has sent an envoy to New York, but it's too soon to tell if U.S.-North Korea talks are on again. Meanwhile, Japan has reported an illegal sanction-breaking action as a Chinese ship has made a high seas transfer of cargo to a North Korean vessel. Who is on our side and for what? There are so many layers of cooperation and conflict; is it really hard to keep it all straight?

Italy's rejection of leadership by the elite (its president) follows in the footsteps of grassroots dissent in Greece and in Spain and Portugal as well as in the U.K.'s decision to Brexit. It is not clear that leaving the EU or EMU would make anything in Italy better: not its banks or its debt or its economic circumstances. But Italy, like the U.K. before it and like the Catalans in Spain, simply wants to take control of its own affairs. The People are tired of being steered by Brussels with a heavy dose of German. The economic underperformance gives Italians a lot of reasons to blame these external decision-makers for their ills despite the fact that so many of their troubles are really home-grown. The past troubles with Greece and the ongoing situation with Brexit are dwarfed by the potential disruption from a Ciaozit, or whatever you want to call it. Italy has deep-seated troubles. It can run but it can't hide. And this crisis is being brought to Europe at time when it is still weak from repeated rounds of German austerity medication. The German medication worked. Inflation is controlled across the EMU. But its side effect was poor growth and now that side effect may kill the patient after all. That's some success.