Waiting for the pin to drop..

Data yesterday reconfirmed weak growth in Europe: 6 quarters of negative growth while EU wide government debt and unemployment increase.

The pin everyone is waiting to hear drop is the first sign of a recovery, but I think this may be more a wing and a prayer than a divine right of economics.

Usually government spending, monetary stimulus, pent up consumer demand and inventory rebuilding lead the way.  But we have fiscal austerity (although this is difficult to see given that debt to GDP ratios continue to rise) and a great deal of monetary artillery already spent. I suspect there is some pent up consumer demand and that there is likely to be some inventory rebuilding when that happens, but I do not see this leading the way up.

The lower the Euro economy falls the more its structural rigidities impact growth and the greater the weight of its sovereign debts and taxation policies. We need something more to stimulate competitive forces within Europe and to find a way out of this deepening depression.

If we look at France, we see that GDP ex the government consumption component has been declining at a faster pace than overall GDP.  If austerity was working we should be seeing a stronger ex government consumption showing:

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The trouble with France in particular, is that so much of its economy runs through the state that austerity measures have a much greater impact.  France not only has to some day reduce debt, but it must also transfer economic control from the state to the private sector.  How do you do this?

Useful references

Moody’s downgrades France’s government bond rating to Aa1 from Aaa, maintains negative outlook – Moody’s

COUNTRY ADJUSTMENT IN THE EURO AREA: WHERE DO WE STAND? ECB

MONEY FOR STRUCTURAL REFORMS IN THE EUROZONE: MAKING SENSE OF  CONTRACTUAL ARRANGEMENTS – Egmont Institute

France: 2013 Article IV Consultation—Concluding Statement IMF

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