A temporary abatement in the eurocrisis leads to the latest article trumpeting the view that Europe is fixed and will begin growing next year. This time is different say the German sell-side permabulls leading the charge.
Investor confidence has risen Germany after economists expected it to remain the same. This could be a self-fulfilling prophecy as investors believe themselves and bid market prices up accordingly. Who really knows why markets go up and down?
Apparatchiks from sell-side firms like Commerzbank and Berenberg Bank believe that Germany will grow on the back of the ECB’s monetary stimulus. Cheap money does send stock markets to frothy heights, but remember that the DAX is already in the midst of an 18% rally since the summer. We have already seen much of the upside.
All of this optimism exists despite the Bundesbank’s forecast for contraction in the present quarter followed by stagnation in the next conveniently avoiding the definition of a recession. Industrial production in Germany has also fallen in the last two consecutive months.
Meanwhile, Spain, Greece Portugal and Cypress are in outright depressions, Italy is in a recession and Ireland is about to join the party. The rosiest of forecasts from the ECB has the Eurozone remaining in recession for the first two quarters of 2013.
With all of their major trading partners faring poorly, who is buying all of those German exports? Growth is slowing in the U.S, and who knows what is occurring in China with those funny numbers. The truth is that higher exports are nice, but Europe does most of its business with itself. Robust exports do not fill the hole caused by the eurozone recession:
Do not confuse a temporary improvement in sovereign bond yields with an improvement in the eurocrisis. All of the countries in Europe except for the FANGs have inefficient economies that can no long pay for their bloated governments. Next year, a worsening economic picture will adversely affect revenue in the PIIGS leading to more bond market distress. Merkel will not make it through elections without a crisis blowing up in the periphery.