Wednesday, July 25, 2012


Eurostat reported on Monday that government debt in the euro area rose 4.5% y/y to a record €8.3 trillion during Q1-2012. Economic activity did not increase as fast as government debt, which rose to 88.2% of the euro area’s GDP from 86.2% a year ago. Greece’s ratio was one of the few that fell (from 152.4% to 132.4%), but remained the highest in the area. Rising were Italy (from 119.5 to 123.3), Spain (64.7 to 72.1), and France (84.3 to 89.2). Europeans seem to be struggling to resolve their debt crisis by trying to lower their borrowing cost so they can borrow more!

Yesterday, Markit reported that the Flash Eurozone PMI Composite Index remained unchanged at 46.4 during July. The services PMI edged higher (from 47.1 to 47.6) while the manufacturing PMI edged lower (from 45.1 to 44.1). The manufacturing output PMI fell to a 38-month low of 43.6 with Germany’s output down for a third month in a row. This morning we learn that Germany’s Ifo business climate index dropped to 103.3 in July from 105.2 in June. The sub-index measuring the current business situation fell to 111.6 in July from 113.9 in June, while the outlook sub-index dropped to 95.6 from 97.2.

Late on Monday, Moody’s issued a “negative” outlook for Germany, the Netherlands, and Luxembourg. The triple-A credit ratings of the three are vulnerable to downgrades because of the risk of more euro zone bailouts. The Germans must be having quiet debates among themselves about whether they might be better off exiting the euro zone themselves rather than continuing to play the role of widely dissed authoritarian paymaster demanding austerity in exchange for bailout funds.

Today's Morning Briefing: Wobbly World. (1) Unsettling news out of China, the US, and Europe. (2) Home sweet home. (3) China’s PMI is up, but still down. (4) Three bad US regional surveys. (5) Europe hooked on debt. (6) Germany can’t run, can’t hide from European woes. (7) Moody’s says outlook is negative for Europe’s Triple-A’s. (8) Hilsenrath says Fed is toying with novelties. (9) Closer to zero. (10) King of the World. (11) Geopolitical tensions. (12) Healthier in the US. (More for subscribers.)

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