Austerity without support is killing the euro


Markit publishes manufacturing and services PMI activity indicators, which usually are a accurate forecasts of what countries have ahead in coming months. The data about November in the euro zone is already out. The scenario does not look good. At all.

Most figures show a contraction in activity and major falls by early 2013 are expected. In fact, records are the worst since June 2009.

“The Markit Eurozone PMI® Composite Output Index was little-changed in November according the flash estimate, up fractionally from 45.7 in October to 45.8. October’s reading had been the lowest since June 2009 and, for the fourth quarter of 2012 so far, PMI data suggest the strongest contraction of output since the second quarter of 2009.”

Indicators of purchases of goods for production, which tell us something about the near future, register a steep drop.

“Forward-looking indicators in the manufacturing sector also pointed to ongoing weakness in the coming months. The amount of goods purchased for use in production fell steeply, causing stocks of purchases to contract at the same pace as the near-three year record seen in October.”

Unemployment goes up throughout the euro area as a whole.

“Employment fell across the region for the eleventh successive month, with the rate of job losses running at the second-fastest since January 2010 as firms sought to reduce costs in the face of weak demand and an uncertain outlook. The rate of decline steepened in services but eased in manufacturing.”

In short, this is how a recession is made. The demand is falling in all country members of the euro zone, and its contagion is effectively running from one to another with multiplier consequences. The cause of this collapse is that the fiscal adjustment implemented in euro peripheral states is not accompanied by transfers from the core euro zone, while the European Central Bank does little to improve the overall situation.

German pro-austerity forces, allied with their Spanish collaborators, are managing the crisis with a strong hand, but in exactly the wrong direction. There will be not enough grand speeches praising the euro to save it, though.

About the Author

Miguel Navascués
Miguel Navascués has worked as an economist at the Bank of Spain for 30 years, and focuses on international and monetary economics. He blogs in Spanish at: http://

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