Hell, it seems to have weathered the storm better than most economies so far – but as long-time readers of this blog will know, I’m the last person to try in-depth economic analysis. Know your limitations, I always say, which is why I rarely cover the Eurozone in any depth.
Thanks, then, are due to Claus Vistesen at Alphasources for this handy breakdown of the current Eurozone economic indicators:
In Italy, business confidence slumped to the lowest level in seven years; in France, it clocked in at the lowest since 2005 and in Germany the ever so important (for ECB policy that is) IFO survey declined to a three year low… Adding to the gloom we also got the PMI release today showing its lowest reading since 2001.
Furthermore, in Spain where it isn’t the proverbial Rome but moreso Madrid (or perhaps the Cedulas?) that are burning, an already groggy economy got some additional blows in the kidneys (see also below) as we learned how secondary inflation rose to an all time highs at one and the same time as the economy shed jobs in Q2 to move into double digit territory with respect to the unemployment rate. As for real economic data consumer spending in France added a near final nail to the coffin by dropping 0.4%.
…There can be little doubt that the data releases above are suggestive of the fact that the Eurozone may well be heading for a full blown recession in Q2 and Q3
Yay! Everyone loves a good recession! It’s now a race to the finish line – who’s going to make it first, the UK or Eurozone? (Far more exciting than the Olympics, this…)
While Claus provides additional analysis (well worth a look) and links to various reports (of which this is a chart-packed highlight), the real question is longer-term. If the Eurozone enters its first recession at the same time that the EU is doing the headless chicken act over the Irish Lisbon Treaty referendum result, what will be the impact on the long-term viability of the EU as a whole? With the economy looking shaky, will the countries of Europe look to the European Central Bank in Frankfurt or to their own national banks for stabilising measures? And can the ECB – only in existence for a decade, lest we forget – handle the tough times as well as the easy? Well, some analysts think the signs point to a big fat no:
While it is certainly overdone to shift all the blame for this sharp downturn on this side of the Atlantic on the ECB, one has to note that the sharp (and in a global context idiosyncratic) turn to the worse coincided with Jean-Claude Trichet’s announcement at the beginning of June that it would increase interest rates… it might just be that the latest interest rate hike and the rhetorics which came with it were the proverbial straw which broke the euro-area’s economy’s back. For ECB critics, it certainly now is easy to make this case. Prepare for some more ECB bashing by the public going forward, especially if the US economy in the end weathers the crisis better than the euro-area.
So, it’s not just the constitutional/Lisbon Treaty crisis – the very centrepiece of European integration is also beginning to look shaky. If the Eurozone starts to crack under the pressure, and especially if those member states outside the zone of monetary union do better than those with the euro, what then for the EU? The little I do know about economics tells me that confidence is of supreme importance – if confidence in the euro is lost so early in its life, will it be able to survive?