New York Times
October 10, 2011
ago, the Markit Eurozone Manufacturing Purchasing Managers Index, which measures activity across Europe in services and manufacturing, had fallen to 50.4, the lowest since September 2009. The divider between expansion and contraction is 50, so Europe was still expanding. But last Wednesday, Markit data indicated that the situation has since deteriorated; the latest data showed a drop in private sector activity in the euro zone for the first time since July 2009. Moreover, the data are poor in the core of the euro zone as well as in the periphery, with Germany and France’s economies stalling as well. The sovereign debt crisis and the fiscal consolidation implemented to deal with it have taken their toll.
None of the current signals indicate the situation will improve without policy support. Business confidence has dropped markedly. For example, the widely followed Ifo Business Climate Index in Germany showed deteriorating business expectations in September. The ZEW investor sentiment index from the Center for European Economic Research showed similar pessimism among investors. Fiscal policy is tightening in Italy, Greece, Spain, Ireland and Portugal. And the European Central Bank has shown a reluctance to use monetary stimulus to offset fiscal tightening by either lowering interest rates or offering liquidity support to indebted European sovereigns.
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