More possible hints that deficits may be large enough to support stability

A little better than expected:

Euro-Area Manufacturing Contracted for 11th Month in June

By Mark Deen

July 2 (Bloomberg) — Euro-area manufacturing output contracted for an 11th straight month in June as Europe’s debt crisis sapped demand across the continent.

A gauge of euro-region manufacturing held at 45.1 in May, London-based Markit Economics said today in a final estimate. That compares with an initial estimate of 44.8 on June 21. A reading below 50 indicates contraction.

A little better than expected:

Italian May Unemployment Rate Declines for First Time in a Year

By Chiara Vasarri

July 2 (Bloomberg) — Italy’s jobless rate unexpectedly fell from a 12-year high in May, the first decline in more than a year.

The unemployment rate decreased to a seasonally-adjusted 10.1 percent, from 10.2 percent in April, Rome-based national statistics office Istat said in a preliminary report today. It was the first decline in the jobless rate since February of last year. Economists forecast an increase to 10.3 percent, the median of eight estimates in a Bloomberg News survey showed.

Joblessness among people aged 15 to 24 rose to 36.2 percent, from 35.3 percent, Istat said.

Better than expected improvement here:

U.K. CIPS Manufacturing Shrank for Second Month in June

By Jennifer Ryan

July 2 (Bloomberg) — U.K. manufacturing shrank for a second month in June as demand “remained weak,” Markit Economics said.

A gauge of factory output was at 48.6 from 45.9 in May, Markit said on its website today. The median estimate in a Bloomberg News survey of 25 economists was 46.5. A reading below 50 indicates contraction.

Some ok Swiss news as well.

Also, sufficient progress at the EU level to give the ECB cover to write checks as needed to get from here to any of the prospective EU measures.

This includes taking forever to get from here to there.

They all seem to understand that the ECB is at least one answer to the solvency issue, and seem to be willing to allow the ECB to provide bank liquidity while they try to finalize an alternative solution. Indirectly that means, at least for now, the member governments will be able to make their payments for the immediate future.

So as previously discussed, they solved the solvency issue, and markets have responded, which leaves them with a bad economy to focus on.

With deficits now perhaps large enough for stability, and maybe a bit of modest GDP growth, I’d at best expect a ‘wait and see’ attitude from an EU that has found it highly problematic to act even in an emergency.

12 Responses

  1. Equilibrium point at a high level of unemployment and pray that freedom of movement sorts out the hotspots?

    That hasn’t worked in the States has it? Do people move around that much?

    1. @Neil Wilson,

      Actually over time it has more or less worked out, even with pretty high cultural barriers. The US almost like several separate countries, and a large state with a varied economy like California is, too. But this has been a long slow process than is far from responsive. We are talking decades here, and there are still many hot spots and a great deal of asymmetry. And that is with tight federalism, function institutions, and a common language and a sense of being a single nation.

      And look at the UK. That hasn’t gone so smoothly either.

      With the cultural and language differences that continue to prevail in Europe, freedom of movement isn’t going to solve the employment issues seamlessly and it is also going to create a lot of social turmoil, too. Trying to run ahead of the curve of social adaptability based on economic reasoning from models that presume elasticity is foolish — and dangerous.

      Recall that the US fought a civil war chiefly for political and economic reasons in which slavery plays a relatively minor role, even though many today erroneously think it was the chief causal factor. A lot of it was over sovereignty and states’ rights v. the federal govt. The US is now revisiting those issues in the current deep divide that heating up rather than cooling down.

      Maybe Europeans are mature enough to overcome these limitations, but I wouldn’t bank on it. I would expect to see dissension and even conflict arising. The asymmetries are too great in too many key areas, not only economic.

      1. @Tom Hickey,

        “And look at the UK. That hasn’t gone so smoothly either.”

        It’s terrible in the UK. London is acting as a black hole sucking in everything for miles around.

        London is like a different country (with at least a third of the entire UK population in a relatively small geographical area), and the differences are getting so great now that it probably would be better if the rest of the UK had a different currency to smooth out the imbalances.

        Quite how this asymmetry has arisen within a European Union I don’t know.

    2. People in the US certainly don’t move around as much as they used to. They can’t, they are “under water” on their homes and prospective employers in different regions are not making up the difference (except for people in the 1% pay range).

  2. The picture presented here of the situation in Europe seems overly optimistic.

    Citigroup has just come out with new projections for Southern Europe in 2013 and it looks grim. Contractions in Spain, Portugal and Greece of 3.1, 5.5 and 10.5%, respectively. This after previous years of recession in all 3 countries.

    So 60 millions Europeans are experiencing a near depression. It sure looks as if deficits are very far from the levels required for growth or even stagnation, at least in the perifery.

    Are people going to accept this quietly? Could be but I doubt it.

    1. yes, but look at the quarter by quarter forecasts.
      last i saw the negative growth is for the first half, with leveling off in the second half?

      don’t know if people are going to accept this quietly.
      but if the second half shows stabilizing and modest improvement I’d guess it would be relatively quiet.

      1. @WARREN MOSLER,

        “if the second half shows stabilizing and modest improvement I’d guess it would be relatively quiet.”

        yes, but I have doubts that the system is self-stabilizing. It is far from it even in “sky is blue” times. If I look around one of the most successful countries in eurozone I see closed shops everywhere and there numbers grow. There are huge construction projects going on around which was an intentional policy of the government (certain tax benefits for fast-tracking of private construction projects) but once they run their course – they are gone. There is only that much back-log you can bring forward. Whats next?

      2. @WARREN MOSLER,

        The Citi forecasts are for the whole year of 2013, not for any specific quarter.

        Again, they spell near depression for 60 million people. In Spain there is already youth unemployment at over 50%, one can just imagine what the figure will be at year-end 2013.

        The single currency has failed the eurozone peoples badly. And no amount of clever tricks designed at European summits – including pathetic, underwhelming infrastructure projects of “old” money corresponding to less than 1% of eurozone GDP – will be able to put their economies back on track.

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