The WSJ speculates that the latest dismal Markit PMI figures will lead to changes in the Eurozone’s crisis fighting methods. Austerity is increasing the severity of the contraction in the periphery. It may be time for a change, but what is the alternative?
People continue protesting spending cuts on social services, government job cuts and tax increases, but they do not propose a feasible Plan B. The problem with the Eurozone is the euro, but only in Italy and only in one party, the 5 Star Movement, is an exit contemplated. Berlusconi implemented austerity measures, and the pace quickened under Monti. Bersani is in favor of continuing this program. If a government is formed, there will be only cosmetic changes to prior policies.
Now consider this Spanish hypothetical. Assume that a video clip of Prime Minister Rajoy accepting cash payments surfaces forcing him to resign with new elections being called. With both left and right weakened from the ongoing crisis, neither is able to form a government resulting in a grand coalition. What happens now?
Again, it seems more of the same. As an observer of the eurocrisis, I have yet to see anyone within the power structure propose an alternative to the present course of action. The current plan is for the ECB to attempt to hold the eurozone together with the printing press while these austerity and other reforms are given time to work. At the present rate of improvement, the periphery would need years to regain its competitiveness relative to Germany and the other creditor countries. Will the social fabric survive that long?
Officials remain optimistic because they have to, but the numbers are dismal save for Germany. France’s GDP is running above what the PMI figures indicate it should be:
As PMI and GDP track each other closely, look for GDP to worsen in the coming months. The opposite dynamic occurs in Germany, which should experience increasing growth:
Unfortunately, this strength will not be enough to overcome weakness from the rest of the Eurozone. As the crisis wears on, it seems that it is time for a game changer. If Europe does not have a solution, then the crisis weary countries will create their own.