The first day I noticed the meme was in November. I criticized the article as being a “this time is different” piece. Then, these pieces began popping up everywhere. In the slow news month of December, you couldn’t open your browser without some journalist listing reasons why the Eurozone was set to recover beginning this year.
First, Wolfgang Münchau told us not to worry about France. Then the meme spread to Spain, and I was mildly surprised because it has showed no signs of arising from its economic torpor. Finally in January, I read an article proclaiming that the worst was over in Greece signaling that we had hit a top in the Eurozone Recovery Meme.
While the herd of journalists and sell side firms were trumpeting this “recovery,” nothing had really changed. The Eurozone’s GDP was shrinking then, and it is shrinking now. Despite repaying LTRO loans to the ECB, the banks were a mess then, and they’re a mess now. Government finances were abysmal in the PIIGS and France then and remain that way today.
This is the chart that should concern everyone in the Eurozone:
Germany is the only country growing in the Eurozone. This divergence is caused by the euro. The fair value of the currency fuels exports in Germany while strangling growth across the region with an exception here and there. This was true in 2012, and it is true now.
The good news in the Eurozone is not even that good. The current PMI forecasts less than a 1% rise in German GDP. Meanwhile, France is expected to decline over 1% based on its reading:
The dirty little secret about the Eurozone is this. Since Germany runs such a large trade surplus with the rest of its Eurozone partners, its growth will not serve as a catalyst to them. Until the periphery dramatically reforms its economies and the Eurozone decides to become joint and severally liable for each others debts and banking systems, the Eurozone divergence will continue to grow endangering the existence of the euro.