Eurozone Recovery Meme: Reality vs. Hope

Euro zone sees light at end of tunnel, pitfalls remain | Reuters.

Euro-Area Unemployment Increases to Record 12.1% Amid Recession – Bloomberg.

Markit Eurozone Retail Report.

Eurozone officials see “a light at the end of the tunnel.” That’s great.  Is the light bright enough so that they can examine the charts above? No matter what anyone says, there is no sign that the Euro Crisis is stabilizing, let alone ending.

Within the Brussels bubble, everything seems copacetic.  Money printing has flooded markets with currency forcing down yields where they may be.  This has changed perception, but the reality remains the same.  Let’s check out the statements made in this article, and see how they hold up:

Ireland’s rescue program is on track.  German and French banks got bailed out of their poor investment choices at the expense of the Irish taxpayer who continues to suffer underneath a 14% unemployment rate and stagnant economic growth.  Unemployment would be much higher, except that many Irish have left.

Greece and Portugal hope for a recovery next year.  Since 2010, Greece and Portugal have been hoping for a recovery.  If the mainstream media keeps predicting a recovery in these countries next year, eventually they will be right but not in 2014.

Slovenia’s banks can be dealt with.  This statement implies that there is a banking crisis in Slovenia.  Fortunately, this is spun to be good news as they “can be dealt with.”  By whom and for how much?

And although Malta’s banking system is vast compared with its economy, it is not structured in the same way as in Cyprus. The same goes for Luxembourg.  I didn’t know there were problems in Malta and Luxembourg.  Why are these countries mentioned out of the blue in this article? This cannot be good.

Spain’s bank restructuring appears to be working.  It depends on what you mean by “working.”  If one means that the banks are being kept afloat by the Spanish taxpayer while they continue to buy Spanish sovereign debt, then, yes, the restructuring is working.  If one means that these banks are healthy and can lend money to spur economic growth, then, no:

By the way, nonperforming loans are still rising in lockstep with declining property values, so do not be surprised if Spanish banks require more capital prior to year end.

All the skeletons are out of the closet.  There are no major issues in the pipeline.  The only closet that is empty is Jason Collins’.  The Eurozone remains chock full of potential disasters.  A change in investor sentiment will send Spain or Italy into the icy, cold embrace of ESM or OMT.  Greece can always surprise.  Portugal still cannot finance itself, and France may soon join the party.

Yet none of that means the bigger issues underpinning the crisis are resolved. While the existential threat may have passed, the need to implement tough and unpopular structural reforms remains, and plans for tighter oversight and control of banks via a ‘banking union’ are not even half-way there.  The existential crisis remains, because the only way to guarantee the continued exist of the euro is joint and several liability for each others government and financial system debts with draconian economic reforms for each country.  In order to achieve this aim, the rich countries will have to pay, and everyone will have to relinquish sovereignty.  There is little support for this among the states or their citizens.

“With Cyprus, we have hit the lowest trough of the crisis,” said Peterson’s Jacob Kirkegaard of the Peterson Institute for International Economics, a think tank in Washington.

“Although we might be down here for a little while longer, due to risks of an aggravated euro-area credit crunch, there is light at the end of the tunnel. Cyprus is now focusing minds on the structural repair of the euro area, such as banking union.”

The bottom has been called several times since the onset of the crisis.  Yet, GDP continues to shrink and unemployment continues to rise.  As long as these countries continue to save the euro, they will suffer because the euro is the problem.

Around the Globe 04.30.2013

EU considers protecting savers against future bank collapses | Reuters.

There are two issues with protecting depositors from banking crises.  As we have observed in prior EU led bailouts, no law is applicable to the troika when its handing out bailout euros.  Whether its confiscating deposits in Cyprus, ignoring bond covenants in Greece or changing member governments, anything and everything is on the table once a country enters the crisis zone.

The only rule that they follow is that Germany and the northern tier will not pay any more money for bailouts.  Hence, a banking deposit guarantee is only as solid as the country issuing it.  Perhaps, we will soon see how this will all work.  Spain’s NPLs have gone parabolic, and Italy has reached the launch point.  (TIP: move your money from Eurozone banks now, like the rich have already done.  Do it now.  Don’t wait.)

Bernanke Watch: Is He Eyeing the Exit?.

Ben Bernanke – 4chon Wiki.

Ben Bernanke will not serve another term as Fed chief, but don’t worry permabulls.  His likely successor, Vice Chairman Janet Yellen, is actually a more enthusiastic money printer.  Ceasing current policy would likely cause a market swoon with unknown consequences, so whoever winds up with the job will not dare to make abrupt changes.

Home Prices in 20 U.S. Cities Climb by Most Since May 2006 – Bloomberg.

Home prices rise, seen helping economic recovery | Reuters.

The Fed’s plan is to reinflate burst asset bubbles via money printing in the hopes that the paper wealth created will induce consumption.  Rising housing prices are only good news for those who are looking to sell.  If you wish to buy, your housing cost will take a bigger chunk from your income for the next fifteen to thirty years.  If you have no plans to move, then rising housing prices will increase property taxes.

Note that against the backdrop of newly forming bubbles the employment situation remains dismal for the majority of Americans.

Business Activity in U.S. Unexpectedly Shrank in April – Bloomberg.

No matter how much money is printed and how much future generations are indebted, the story remains that all the magic bullets fired to revive the American economy have failed.  Removing red tape and reforming the country’s byzantine tax code would probably kickstart the economy, but politicians are loathe to propose these policy choices.  Reducing laws and taxes decreases the government’s power, so this strategy is essentially a nonstarter.

Special Report: Kuroda’s calculus – How the Bank of Japan staged its big bang | Reuters.

Since I began following the financial markets as a teenager in the 80’s, a distinct trend has emerged in mainstream media reporting.  The central banker is lionized and treated like a rockstar among the financial outlets.  This report is typical of the trend.

Whenever you read these articles, keep in mind that there are no simple solutions to the present quandary in Japan.  Years of economic stagnation, runaway spending and demographic decline have created a disaster waiting to happen.  No amount of Bank of Japan action will change the endgame, though it will alter the timing somewhat.  Japan will now collapse either sooner or later than otherwise.  Take your pick.

In the meantime, whenever the mainstream media blathers about the Japanese recovery keep the chart above in mind.

Japan household spending surges as Abenomics gains momentum | Reuters.

Older shoppers lead Japan’s surge in consumer spending – FT.com.

Slap a few anecdotes together, cherry pick your statistics and you have a recovery meme.  This type of article has been quite popular during the eurocrisis, and now it begins to appear in Japan.  Consumer spending rose 5.3% in March, but retail sales simultaneously fell 0.3%.  How can both those facts be true? Methinks higher import prices caused consumer spending to rise taking a bite out of other sectors.

Japan-to-Korea Output Misses Estimates as Taiwan Cools: Economy – Bloomberg.

The biting reality of the Japanese situation is contained within this article.  This information was not hyped as much as the rise in consumer spending, but it is just as important.  Industrial production continues to remain soft in the Pacific Rim.  With that fact in mind, who will buy all of those Japanese exports to spur a recovery?

UPDATE 3-Cyprus bailout scrapes through island’s parliament | Reuters.

The Cyprus bailout passed parliament by a 29-27 vote.  The Cypriots just condemned themselves to a decade of depression and stagnation in order to maintain their euro membership.  The people support the euro by a two to one margin, so they only have themselves to blame now.

Around the Globe 04.29.2013

Europe’s Manufacturers Face a Test – WSJ.com.

Euro-Area Economic Confidence Falls More Than Forecast – Bloomberg.

Euro-Zone Businesses Lose Confidence – WSJ.com.

The Eurozone economy will not cease contracting for the immediate future.  The steady rise in confidence witnessed from November to February was in part caused by rosy official forecasts for economic growth being parroted by the mainstream media.  The Eurozone is simultaneously cutting government spending and business investment while consumer spending continues to decrease in lockstep with employment.

Exports, the proposed savior of every country caught within an economic and fiscal crisis, cannot substitute for the steep contraction in every other GDP component.  The growth in exports occurring in periphery countries in unsustainable in a world where the Eurozone’s largest markets are either shrinking or not expanding rapidly enough to boost demand.

Tame Inflation to Keep Fed on Course – WSJ.com.

Ebbing Inflation Means More Easy Money – Bloomberg.

Still stuck on central-bank life support | Reuters.

Investors are riding high in April and may take profits to avoid getting shot down in May.  The Fed’s plan remains the same: giving cheap money to TBTF banks to pump up asset prices in the hopes that a wealth effect revives the economy.  Nothing can be allowed to spoil the party, so the Fed must telegraph its intentions without explicitly stating them.   Hilsenrath’s job is to make it clear to market participants that the Fed will continue spiking the punch bowl to make sure everyone keeps dancing.

This policy will not stop, because a market correction will return the weak economy to stagnation or even a recession.  The low official inflation rate, which omits asset prices from its calculation, gives the Fed cover to continue the policy.

Germany Isn’t Stupid; It Has a French Nightmare – Bloomberg.

Germany realized that its was heading down an unsustainable path, so it loosened its labor markets and adjusted its social programs.  France did not and has learned nothing from the Teutonic example on the other side of the Rhine.  Rather than rethinking its social and economic model, France is becoming more extreme in its views.  As its economy sinks so does its influence, making the EU a weaker institution dominating by Germany.

Germany cannot save the Eurozone by itself, but a strong France and Germany standing side-by-side has a chance.  Alas, with the increasingly harsh rhetoric coming from Hollande’s socialist camp, French reform prospects are close to zero.

Progress and Problems for Greece – WSJ.com.

The mainstream media’s definition of progress apparently has something to do with shuffling papers back and forth between the three head of the troika and the Greek government  Real progress, as in a growing economy, seems years away.

Italy’s Political Progress Fuels Market Recovery – WSJ.com.

Italy is now paying record low yields for issuing debt.  Yet, by the day the chances that it will ever be able to pay this debt back dwindle.  Tax revenues continue to shrink with GDP and employment, and increasing NPLs virtually guarantee some sort of bank bailout within a year or two.  Where will Italy obtain the money to recapitalize its banks? (Hint: Cyprus)

Austerity is hurting our health, say researchers | Reuters.

Poor economic performance is bad for a nation’s health.  The problem with budget cuts is that programs promoting the health of citizens are cut in favor of military spending, which has powerful political backers.  Greece is an excellent example of this dynamic.  The country has cut malaria prevention programs like mosquito spraying and has witnessed malaria outbreaks unseen since the 70’s.

The military budget is mostly intact, which is a good think.  Xerxes and his Persian armada will think twice before invading Greece.

Around the Globe 04.27.2013

Fed and Jobs Report Cap a Big Week for Markets.

From ZeroHedge

Calm down.  The Fed will continue its policies until eternity or the system crashes, whichever comes first.  At its present rate of expansion, the Fed balance sheet tips an S&P 500 of about 1950 by the end of the year.  Attempts to shrink the balance sheet will lead to a market sell-off.  Recall that the last time the Fed tightened the money supply in 2006-7, the stock market entered a bear market that did not end until QE began in earnest in 2009.

Italy Forms New Government After 2-Month Stalemate.

Letta confirms can form new Italy government | Reuters.

Letta Appointed Prime Minister, Italy Gets New Government – Bloomberg.

The Borgias and D’Medicis would be proud.  After two months of political intrigue, Italy will finally have a government.  The Grand Coalition will pass electoral laws attempting to limit the power of the 5 Star Movement and make some necessary economic reforms.  After the government does the dirty work, Berlusconi will attempt to bring it down and seize power in another round of elections.  Just when you think Italian elections are over, you realize that they have just begun.

Iceland Sours on Austerity as Pre-Crisis Parties Close on Power – Bloomberg.

No good deed goes unpunished in politics.  The Socialists/Greens took over for the Independence/Progressive Alliance, who were responsible for Iceland’s banking crisis in 2008.  Since then, Prime Minister Johanna Sigurdardottir has guided the country back from the dead.  Her policies have led to easily the best economic performance among the crisis countries.  Compare Iceland and Ireland since their banking crises erupted, and you would think that the Socialists would have the support of the people:

Iceland a Better Model Than Ireland for Crisis Fighting | DARECONOMICS.

Think again.  Icelandic voters are set to reelect the parties that got the country into trouble in the first place.  Good leaders that make tough decisions to help their countries are seldom appreciated.  Note in appreciation for his shrewd leadership that the British threw Winston Churchill out of office one month before the end of WWII.

The S&P 500’s Most Shorted.

With all of that central bank money swamping markets,  another short squeeze is on tap for 2013.  As shorts abandon their positions, stock prices hit dizzying heights.  There may be an opportunity here.  US Steel and JC Penney have taken a beating, and there may benefit from a relief rally.

Around the Globe 04.26.2013

Spain Slashes “Growth” Outlook, Projects Higher Deficit, Delays Deficit Reduction | Zero Hedge.

Spain Says Deficit Target Must Wait 2 More Years Amid Slump – Bloomberg.

Still Sputtering, Spain Turns Away From Cuts – WSJ.com.

The mainstream media misreports the Spanish fiscal and economic situation whenever it puts pen to paper.  Fortunately, we’re on the job even on a beautiful Spring Friday in New York City.  There are two errors in the WSJ chart above which I have corrected.  The first is that the cost of the bank bailout is not included in 2012’s budget deficit.  Just because the EU says that this money will not count against the technical 3% limit for Eurozone countries does not mean that it does not exist.  The bailout money adds over 3 points to the budget deficit for 2012, and it will not be a one off item.  As property continues to plummet in value, non performing loans rise.  In fact, do not be surprised if the banks require another €50bn or so by the end of the year.

The second error is that the chart has not been updated to reflect Spain moving its budget deficit from 4.5% to 6.3% for 2013.  Allowing another 3 points for the second bailout gives us the number, about 9.3% in the redrawn chart above.

Cheap money from the world’s central banks has created a great yield chase, which is primarily responsible for the drop in periphery interest rates.  If this torrent of money ceases, Spain’s rates will begin rising again leading to a lot of trouble.

UPDATE 2-Differences with centre-right delay Italy’s Letta | Reuters.

I am sick to death of Italian politics.  At this juncture, it appears that the two establishment parties will collude to reduce the power of the insurgent 5 Star Movement.  Beppe needs to do something, or else his movement is heading to the waste bin of history.

Growth in U.S. Trails Forecasts as Defense Spending Falls – Bloomberg.

Bloomberg was hyping a 3% growth rate based on a survey of economists taken a few days ago.  Economists have trouble even forecasting the past quarter with a full bevy of data.  Remember that economic analysis is not science.

COLUMN-Market euphoria misreads the signals from Brussels and Rome: Kaletsky | Reuters.

This is an excellent piece, and I highly recommend reading it.  The author nails the Italian political situation.

Bundesbank Faults ECB Bond-Buying Plan: Report.

While BuBa will criticize OMT, that is its job.  Germans expect their central bank to be sober and conservative.  In the meantime, Merkel is calling the shots, and if the sovereigns come under distress the ECB will begin buying those bonds no matter how much the BuBa objects.

Around the Globe 04.25.2013

Italy Led by Letta Brings Berlusconi Back to Governing as Winner – Bloomberg.

Italy’s New Leader Throws Down Gauntlet on Austerity.

Letta and Berlusconi will work together after Bunga receives some favors in exchange for his support.  The question is how long does this grand coalition last? Bunga is currently leading the polls, and he may just be biding his time until he can organize his coalition for another run.

The mainstream media gives credit for the recent bond rally to the resolution of this political stalemate, but as we have shown several times on these pages the rally began in earnest when the BoJ recommitted to money printing.  Traders are frontrunning the liquidity pushing yields down in both Spain and Italy.

South Korea’s Economy Grows at the Fastest Pace in 2 Years – Bloomberg.

South Korea GDP performance is being lauded, but as you can see in the chart above growth is on a downward trend.  South Korea’s growth will not accelerate to former lofty levels until Japan and China begin expanding rapidly, and that does not look like it’s in the cards.  As long as South Korea’s growth remains anemic, there will be pressure for the central bank to weaken the Won further.

By the way, guess which country’s currency has weakened the most since the U.S. closed the gold window in the early 70’s.

Spain Unemployment Rate Hits Record 27.16% in First Quarter.

I could write the headline when Spain releases its unemployment rate every quarter: Spanish Unemployment Hits Record X%.  Spain’s unemployment rate has been rising at a fantastic pace and even accelerated last quarter.  The 1.2 point rise represents almost a 5% increase in the number of unemployed in just one quarter.  Since late 2007, only two quarters of 24 had decreases in the rate as the chart above makes clear.  In coming months, the rate will exceed 30%, as the euro continues to slowly strangle Spain to death.

Pound Rallies on U.K. Growth as S&P 500, Gold Advance – Bloomberg.

Britain avoids recession with faster than expected growth | Reuters.

The U.K. did avoid the technical definition of a recession, but its economy is still not doing well.  It has shrunk in four of the last six quarters, and this quarter’s growth of a mere 0.3% is anemic at best.  Since the word “recession” is out of play, exuberance has pushed up the pound and the FTSE.  With the slump in the Eurozone deepening, growth in the U.K. will remain low despite today’s not bad news.

Chrystia Freeland | Analysis & Opinion | Reuters.com.

Ms. Freeland points out the trend of lionizing central bankers and then piles on wholeheartedly.  Money printing is inflating asset prices, which is preserving the status quos for the rich, the TBTF banks and bankrupt governments at the expense of the worker.  Note that in every country practicing extreme forms of money printing, unemployment remains stubbornly high depressing wages.  On the other hand, lofty stock markets fuel record prices for high end real estate, art and collectibles.  This will end badly, but in the meantime mainstream media journalists will deliver breathless odes to their heroes.  The rest of us know the truth:
Central Bankers are not Supermen | DARECONOMICS.

 

Central Banks Load Up on Equities – Bloomberg.

Central banks have been intervening more and more as the Great Financial Crisis drags on.  Will these banks require more taxpayer money to recapitalize after the next bear market?

Portuguese Recovery Meme

Surging Portugal Exports Led by Volkswagen Signaling a Recovery – Bloomberg.

This is my first Portuguese recovery meme article, and the writer follows the form to a tee.  Basically, a few anecdotes and economic statistics are presented without context to show that the country is recovering from the Eurocrisis.

The central theme of the piece is that rising exports are leading Portugal to an economic revival.  Examples of export success are given, and the writer evokes the old trade routes plied by Vasco de Gama, which is a nice touch.  A source even claims that Portugal was the first global economy.  This is not true, though it could claim the second spot.  Venice with its network of outposts and established trading routes with the Ottomans and Far East was the first global economic power.  The Portuguese overtook the Venetians by establishing a trading route around the Cape of Good Hope to the Indian Ocean.

Unfortunately, none of this changes the hard, biting reality of economic statistics.  Exports contribute about 40% to Portugal’s GDP.  This means that exports have to grow 1.5 times the decrease in consumer and government spending just to keep the economic in place.  That is asking too much of the new Atlantic Tiger:

Not only does GDP continue to decrease amidst the rise in exports, the decline is accelerating.  Additionally, the export boom is unsustainable anyway, because 71% exports go to other Eurozone nations most of which are in recession including Spain, Portugal’s largest trading partner.

When exports level off, the country has little means to revive domestic demand.  Government spending cuts are causing a vicious multiplier effect throughout the economy resulting in falling consumption as evidenced in the chart above.

Moreover, Portuguese labor costs have declined a mere 6% since the start of the crisis but would have to fall another 25% to equal Germany’s productivity.  The decrease so far has caused a recession and record high unemployment, so it is unlikely that Portugal will be able to endure a further adjustment of the necessary magnitude.

For some reason, journalists writing these articles never consider a Eurozone exit, and ironically that is the only way to solve the Euro Crisis.  Remove the euro, remove the crisis.

The choices facing Portugal are grim.  It can either choose to remain in the euro and experience a lost decade or more in economic growth, or it can exit the euro, endure a one or two year depression that will wipe out citizens’ savings but at least resume growth with a devalued escudo.  As the Euro Crisis has shown, countries that remain within the Eurozone do not resume sustained growth, and this is what they ultimately need to put their fiscal houses in order.

 

Around the Globe 04.24.2013

ECB Rate Cut Seen Next Week by Banks From Nomura to RBS – Bloomberg.

ECB Rate Cut Could Bring Big ‘Disappointment’.

LTROs, SMPs,OMTs  and prior rate cuts have failed to revive the struggling Eurozone economy.  This one won’t do the trick either, but the rumors have already had an effect on European markets.  Traders are frontrunning the ECB and loading up on assets in anticipation of further gains when the rate cut is announced next week.

Interest rates will remain high in the periphery despite the ECB’s anticipated action.  The Eurozone has effectively split into several regions with the German area being the most creditworthy and with Cyprus being the least with every other country somewhere in the middle.

Goldman Flip-Flops on Gold.

People are attempting to spin Goldman’s gold market performance into a conspiracy theory.  My theory is that the firm just got lucky.  That can happen, right?

Twitter Hoax Sparks Swift Stock Swoon – WSJ.com.

I wonder if the hackers meant to cause a market disruption to profit from or was that an unintended consequence of their actions.  The machines rule the stock market nowadays, and the herd effect is multiplied by removing humans from the equation.  The next time there is a serious panic, the market will behave in unexpected ways.

Insight: What ever happened to France’s voice in Europe? | Reuters.

Money talks, and you know what walks.  The Germans are just following the golden rule: He who has the gold makes the rules.  Since all of the proposals require German money, they are the ones making all the calls.  I think this is a mistake, because Europe works best  when all of the countries, including France, bring something to the table.

Italy president names center-left’s Letta as new premier | Reuters.

President Asks Letta to Form Government in Italy – WSJ.com.

Yesterday, the word was that Matteo Renzi would be picked to form a government after Berlusconi’s coalition said that they would not object to his appointment by President Napolitano.  Something changed overnight, because he wound up selecting Enrico Letta to attempt to form a government.  Letta said that the other forces will have to make concessions if they want him to lead, but it is unclear why either coalition would do that.  If there was an election today, Berlusconi would win with the 5 Star Party picking up seats, too.  I still believe that there will be a second round of elections this summer, but Italy always manages to surprise.

Durable-Goods Orders Drop 5.7% – WSJ.com.

Weak durable goods orders point to sluggish economy | Reuters.

The housing recovery theoretically increases economic output as new households buy durable goods like washers, televisions and garage door openers.  For some reason, this is not happening.  Maybe durable goods orders are down because there really isn’t a housing recovery, just a lot of hype.

 

Around the Globe 04.23.2013

China’s Recovery Falters as Manufacturing Growth Cools – Bloomberg.

China HSBC Flash PMI.

The China recovery meme will die hard.  Despite its economy slowing to stall amidst a decline in new export orders, commentators seem to believe that China has solved the problem of the business cycle.

The country has been maintaining its growth rate through a credit boom leading to malinvestment in the housing market and state industries.  Since these assets are providing no returns, a nasty recession is in China’s future, but not today.

Jim O’Neill: I Wouldn’t Put My Family Money in Bunds.

The most interesting thing about this article is that the Mr. O’Neill has spotted the same trend that we have been following for a few weeks now.  He believes that cheap yen is flooding the markets pushing asset prices up.  European sovereign bonds have definitely benefited from the money and from traders frontrunning the promise of moar money in the future.

Note the recent performance of Italian bonds above and remember that the country is experiencing a nasty recession and has not had a government for nearly two months.

Emerging-Market Returns Unhinge From Developed: Chart of the Day – Bloomberg.

This is an interesting chart.  The article reports that wage inflation is sapping growth in the BRICs  leading to stock market divergence, but I do not agree.  It seems that established stock markets are just receiving more cheap central bank money, because they are perceived as less risky.  The BRICs are growing faster than Europe and Japan and about even with the U.S., so differing growth rates do not provide a compelling explanation for this divergence.

Italy’s Napolitano accelerates search for new government | Reuters.

Even though Napolitano is pressing ahead with forging a government, I still believe that a second round of elections is in Italy’s future.  Only a grand coalition between the left and right has a chance of forming a government.  Berlusconi’s bloc is not objecting to new Democratic Left leader Matteo Renzi, so it will allow a government to form.  However, the center right is now ahead in the polls by 9 points.  Surely, Berlusconi must realize that he has a decent chance of forming a government after a second round of elections.  Meanwhile, the 5 Star movement does nothing.

Ireland says will invest in economy only if targets are met | Reuters.

I think that Ireland is getting ahead of itself here.  It is counting on projected economic growth to raise tax receipts and reduce its budget deficit to 4.5%.  Unfortunately, its largest trading partners are performing poorly sapping demand for Irish exports.  Growth will be hard to come by in 2013 and the budget deficit and unemployment will remain stubbornly high for the immediate future.

Eurozone Contraction Continues

Euro-Area April Manufacturing, Services Contract – Bloomberg.

Microsoft Word – EZ_Composite_ENG_1305_FLASH.doc – 745fac706a3642ccb7aee03b21caa5e9.

Eurocrats and Eurozone governments have been promising a recovery for months now.  Each quarter it fails to materialize, so it is just pushed back a few months.

There is no basis for predicting an end to this recession in the near future.  All economic indicators point towards a continuing contraction.  The eurozone recovery meme is based on increased exports to the United States and China and higher economic activity from Germany leading the continent back to growth.  Exports from the Eurozone have risen, but the change is not large enough to overcome the precipitous decline in Europe’s consumer and government spending.

Moreover, Germany’s nascent recovery has stalled with its output has entering contractionary territory.  This bad economic bad news could not come at a worse time for Angela Merkel who is standing for reelection in five months; however, slowing German output in a time of low inflation throughout the Eurozone should remove German objections to an ECB rate cut probably after the next meeting in May.

Rising unemployment is bad for the incumbent, and Germany’s shrinking output is reducing workforce growth.  The temporary rebound in employment looks to be coming to an end amidst economic contraction.  While German unemployment is not rising, that is where the trend is heading:

The current numbers illustrate Europe’s continuing economic decline, and there is no end in sight to this recession.  Each European government has projected a smaller budget deficit this year based on a recovery developing in the second half.  As these numbers make clear, European government budget deficits should continue to rise in 2013 as tax receipts fall short of projections.