Good morning, Monthly readers, wherever you are! It’s just after 8 a.m. in Washington, but, as Reagan would say, it’s morning again in Europe, too.
Perhaps. That’s Cardiff Garcia’s tentative conclusion after surveying recent research on the European economy, which suggests that access to capital, demand for loans, and planned spending in the private sector might all have at least stopped decreasing for the moment. The economy could begin to recover soon if nothing goes wrong, and that would be good news for all of us.
One crucial caveat from Open Europe regarding the Purchasing Managers’ Index, a measurement of the strength of the private sector:
The PMIs for many countries are still contracting – France included (see right-hand graph above). Given that this crisis is much more about divisions between countries than the aggregate as a whole, such gaps remain important. In fact, with Germany posting strong results, the gap between the strongest and weakest may grow. This could create tensions for future ECB policy.
That is, Europe hasn’t really addressed the fundamental problem with a currency union. If different countries’ economies expand, contract, or recover at different rates, central bankers are going to have a hard time settling on a policy that is both economically appropriate and politically feasible for the entire region. Looking into the future, how will the central bank support recovery in the peripheral countries without causing (if it isn’t too much to hope for) inflation in the price of the euro or bubbles in asset prices in Germany?
Still, that would be a much better problem to have than the ones Europe is dealing with now.