As we move from the shock to the core, Euro industrial production data is more than just a number..

Industrial production down by 0.3% in euro area and EU27 – short term data is far less important than the longer term compound declines in industrial production shown in the following chart taken from the Eurostat report.

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Short term declines in output can usually easily be accommodated by an economic framework, but, longer term, sustained declines have much more damaging effects: higher unemployment and its attendant social and funding issues; lower capital investment and reduced investment in human capital; overall infrastructure risks; deflation as returns on capital decline and as increasing amounts of marginal capital are written off (debt attached to such capital needs to be written off, impacting asset values and broad money supply stock); and ultimately increased costs of future growth. once an uptrend is re-established, including that of inflation.

The longer the economic malaise continues the greater will be the impact on productive and financial capacity of the Euro economy and the greater the weight of the current sovereign (and banking system) debt problems. 

All this at precisely the time that the new Fiscal Compact rules come into force.

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