by Richard Barley
Wall Street Journal
September 2, 2011
The euro zone's failure to deal with its sovereign-debt crisis, other than by announcing ever larger doses of austerity in ever greater numbers of countries, is hitting home. Manufacturers are suffering, and even in powerhouse Germany stagnation is close. Without growth, Europe's budget arithmetic could be undermined, setting off a new round of market turmoil.
Euro-zone manufacturing output contracted in August, Markit's purchasing managers' survey signaled Thursday. The headline index fell to 49, worse than expected and below the crucial 50 level that separates improving from deteriorating conditions for the first time since 2009. Of the eight countries surveyed, five—France, Italy, Spain, Ireland and Greece—contracted, while Germany, the Netherlands and Austria only just remained in expansion.
But the drivers for growth are vanishing. New orders fell across all countries, backlogs of work shrank and export orders fell everywhere except Ireland and Greece. Worryingly, Germany saw the steepest decline in export orders as the debt crisis crimped business. While employment levels are holding up, jobs growth is slowing, suggesting consumer spending cannot be relied upon to make up for declining exports.
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