Bad News for the Eurozone in Markit PMI Release

Markit Eurozone PMI January

Markit Eurozone PMI for January.

The good news is that the Eurozone economy is decreasing at a slower rate. The rate of decrease has slowed over the past three months, so we have a positive trend here.

The bad news is that Germany is accounting for most of the uptick, and the divergence between the core and the periphery is growing. Even worse, France has joined the periphery economies. Germany is the only one of the four largest economies to be in expansion:

January Markit PMI Germany

The eurocrisis in its essence is a divergence between the rich and poor countries with the common usage exacerbating this split. While some data may show improvement, those “green shoots” are merely noise. The signal is the strengthening of the bifurcation between the haves and have-nots. To wit, two charter members of the periphery, Italy and Spain, along with new member France remain safely within contractionary territory:

January Markit PMI France January Markit PMI Italy January Markit PMI Spain

Spain is improving, and at least Italy is not getting worse, but France is peering over the cliff.

The problem with using one currency for very different economies is that only one monetary policy may be implemented. German requires a stable policy to keep inflation at bay, but the other countries, particularly France, require expansion. The bottom line is that as long as these economies continue to diverge, the eurocrisis will continue to fester.

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