New Eurozone Meme: It’s Not As Bad As It Looks

EU Says Euro Area to Shrink in 2013 as Unemployment Rises – Bloomberg.

The European Commission has changed its growth prediction for 2013 and is now projecting the Eurozone recession to continue through the year. This is no surprise to astute readers of Dareconomics. When Mario Draghi was predicting a coming Eurozone revival three months ago, we called him out on it:

This revival requires that Europe take some chances to solve the Eurocrisis, which is not happening before German elections. Watch for the EU to remain in recession for the rest of 2013 with budget deficits worsening across the entire continent. (Draghi Fantasizes about a Eurozone Recovery)

The economic news is entirely abysmal, but the mainstream media seems incapable of writing anything without creating another side to the story even where none exists. As such, Bloomberg gives us four meaningless quotes from three different hucksters.

While “hard data” has been disappointing, there also has been more encouraging “soft data” that points to better times, [Ollie Rehn] told reporters today. I read the entire article. One example is given of positive “soft data.” German investor confidence is rising. This statistic is not “soft;” it is meaningless. Germany is not the problem in the Eurocrisis. It’s weak periphery. Moreover, investors are confident because easy money policies are causing asset price inflation, and these policies are set to continue indefinitely. This is the one chart that dispels the soft data misconception. Bloomberg reported on it this week, so at least someone there is paying attention:

Germany vs France vs Eurozone PMI February

As you can see, Germany is expanding while the rest of the Eurozone is shrinking, and hard data trumps soft data.

“We still have a lot of noise and volatility in the monthly data, but the bottom line is that the euro zone as a whole has already turned.” — Chief euro-area economist at UniCredit Global Research in Milan Marco Valli. This economist employs a common trick utilized to present poor data in a favorable fashion. He derides the last month’s data as noise and volatility, because it does agree with the recovery narrative he is presenting. Look at the chart above and focus on 2011 to the present. While the lines are French are Eurozone lines are choppy, they are exhibiting clear, downward trends, though it appears that Germany has turned a corner. With the payroll tax shock and upcoming sequester limiting American consumption, will Germany continue growing? The U.S. and China are its only hope right now.

By the way, Valli works for UniCredit, an Italian sell-side firm. He is paid lots of money to deliver research that encourages people to invest. Remember this when he delivers his opinions.

“Some signs of a turnaround are now discernible,” [Marco] Buti [Chief of the commissions economics department] said. “The present forecast projects a return to moderate growth in the course of this year, as confidence gradually recovers and the global economy becomes more supportive.” There are many statistics to consider when examining a system and attempting to forecast its future. Which are signals, and which are merely noise? Buti works for the European Commission, and it is his job to support its narrative of coming events. If he predicts a continued recession, he may be right, but he will certainly be out of a job. However, if he continues to say that everything is right, he will be wrong, but at least he will still have his cushy position next year.  Read his statement closely, particularly the second part. Confidence is only rising in Germany. It is declining in the rest of the Eurozone, but you would never know it from reading this article. Furthermore, there is no factual basis for predicting a more supportive global economy. Leading indicators point to a slowdown in the second half:

The EU is close to agreement on how to install the ECB as a common bank supervisor for the euro area, as well as how it will apply new global standards on how much protective capital banks should hold, Rehn said.  When the numbers from the Eurozone fail to support the recovery meme, official like to trot out empty political gestures. Europe may have something they like to call a common banking supervisor, but it is not. The regulations are watered down, there is no common depository insurance  or resolution scheme, and “close” means there is no agreement. Basically, no one has agreed to anything, and the Germans aren’t paying for it anyway. FANG Exhibits 2nd Thoughts on Banking Union

These misconceptions are easy to debunk. European markets continue to levitate not because of happy talk, but because they are benefiting from an implicit ECB guarantee to turn on the money machine as soon as it becomes necessary. What will happen once Draghi is called to do “whatever it takes?”


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