EMU Trade Still in Deficit Amid Withering Trends

Withering from heights - The chart offers a very clear picture of euro-trends. Export growth is withering. Import growth is withering in step. As a result the EMU external trade deficit has steadied at around -€2.5bln.

Near term export trends decay - As for the nearer-term trends, one year and in, they reinforce this picture. While exports are advancing at a 7% pace over 12-months they also are contacting at a 7% annual rate over three-months.

Imports decay - Imports, rising at a 7.6% annual rate over 12-months, are shrinking at a 7.7% annual rate over three-months.

Decay is self-evident - Over six-months both exports and imports are down to slow growth or outright shrinkage. As a result neither foreign demand nor domestic demand seems to looking very good. And the evidence of decaying trends is just too strong and widespread dismiss.

Trade picture is chilling, not chillin’ - The trade picture in the zone is as chilling as the indicator surveys that have weaker than the ‘real time’ economic reports such are industrial output. Declines in trade flows over the recent three-months have become widespread. Slowdowns over six-months compared to twelve-months are common as well. There is little reason to look at euro-trade trends and to doubt the encroachment of weakens on the Euro-Area. It is here, more of it is coming and the cause if it all is still ‘on the loose.’

Dollar facility to the rescue, but a temporary rescue - As this week draws to a close the Euro-Area stock markets are cheering, rebounding for a day. A dollar liquidity facility has taken dollar-poor euro-banks off of death’s doorstep but it has not lifted them out of harm’s way. The Euro-Area crisis remains as clear and strikingly impenetrable as it has ever been. Gordon Brown sums it up as worse than in 2008. For Europe he may be right as banks are in a morass and sinking deeper by the day. They can’t seem to find any common ground to attack the problem. But in 2008, let us all remember the fear. There was a lack of agreement about the problem and no idea how to find a solution. The 2008 crisis was marked by myriad patch-work programs to try and stop the bleeding to hope beyond hope that once done the system could heal itself, somehow. There was interbank tiering in bank funding of severe degrees. There were central banks around the world propping up banks as fast as they could; that air of immediacy is missing this time. And the problem is well-known and clear cut. It is the solution that is elusive.

This time it’s different, but not better - So 2011 is different, but not all that reassuring, as Mr. Brown points out. What is most disturbing are the hard cold facts that tell even the most jaded and denial-prone euro-banker what a deep mess he is in. Europe can try to put its best spin on the circumstance but it has some very indebted countries that are certainly not going to return full value on the loans that have been made to them. That is bad for banks and yet that situation will be dealt with... But what cannot be resolved so easily is the rest of the mess. And I do not mean to imply that the financial loss-sharing is worked out or will be easily worked-out but it is the easier of the jobs that must be done. The fate of the Euro-Area is what really hangs in the balance, not just of Greece or Spain or Portugal or Ireland or Italy- the Zone itself. And because of the way this crisis has unfolded and because it has been long in the making and because all EMU members have been long in denial and have not planned for this eventuality, the issues to be resolved are very thorny, are deep seated and cut unevenly across EMU members. In the end it is about more than just bank debt; much more than about bank debt.

The Sunday funnies...And that is why solutions are so hard in coming and why growth will be held hostage in the meantime. The trade flows tell us that with perfect clarity. The uncertainty for economic activity despite some of the too-quick reassurances should not be underestimated. Until Europeans tell us exactly how committed they are what sort of pain they are willing to undertake to save the Zone or back-stop Greece, no reassurance about the outcome, about Zone, or about its likely membership or composition can be taken any more seriously that the Sunday funnies.