Everyone was supposed to go home happy after an EU summit that beat expectations. However, if you look at the crux of what Europe did at the summit, you would get the impression that Wolfgang Münchau got, that they really just played around with a European bailout fund that has no additional cash in it. Putting Spain and Italy’s liabilities on it would bankrupt the fund a couple times over. The ECB, the only entity with the money to inject into the system, still has not been tapped. And as Münchau says, Germany still resisted any solution that would affect their bottom line:
The most important event last week was probably not the agreement at the summit anyway, but the statement by Ms Merkel that there will be no eurozone bonds “for as long as I live”. My belief is that this statement reveals she is not serious about political union, to which she has been paying lip-service over the past few weeks. Her tactics remind me of the “coronation theory” of the 1980s: the Bundesbank used to say that monetary union was acceptable but only after full political union was completed. It was another way of saying never. I always suspected all this talk about long-term solutions might be a ruse. Now, it seems, we know.
Only the crisis in Europe is affecting Germany’s bottom line. We’re finally starting to see that. On a day where unemployment in the Eurozone hit a new high of 11.1% (see chart from the Guardian) with youth unemployment over double that, German manufacturing is feeling the bite from the slump among export partners:
Germany’s manufacturing sector shrank in June at the fastest pace in three years, with new business intake dropping for the 12th month running, in a sign the economy is suffering from both the euro crisis and a broader global economic slowdown.
Markit’s manufacturing Purchasing Managers Index (PMI) slid to 45.0 in June from 45.2 in May, registering the fastest decline in the sector since June 2009, final data showed on Monday. The figure was just above a flash estimate of 44.7.
Manufacturers saw the sharpest deterioration in overall business conditions for three years in June as an abrupt and broadening global economic slowdown pulled the rug from under the export-led recovery,” said Markit economist Tim Moore.
Germany is more vulnerable to this than most countries, given its focus on exports. So growth in the Eurozone is not just something that Germany can pay lip service to, it’s crucial to their economic well-being. Their resistance to anything but austerity has come back to haunt them.
The overall manufacturing numbers for the Eurozone don’t look much better. And that unemployment rate reflects a record high. None of the solutions at the celebrated EU summit, save for a middling €120 billion plan for stimulus, will attack this central issue of growth. Lower borrowing costs in the midst of a recession doesn’t stop the recession.
Incidentally, Finland has become more vocal in resisting solutions that increase their exposure, like allowing the European bailout fund to purchase sovereign debts directly. This was one of the solutions that came out of the EU summit. So the northern countries will still object to what amounts to bailouts for the southern countries, and the Euro project will still stagger without unity or cohesion.