Weak Economic Performance
It was reported last week that the recovery in euro-land remains more hope than reality. It is worth noting that the sovereign debt crisis has not produced much by way of spending cuts on the part of governments. By and large, the debtberg has just kept growing as if nothing of importance had happened. While the gap between government revenue and spending has narrowed somewhat – due to a combination of tax increases and a slowing in the contraction in the economies most severely affected by the bust – total spending has continued to grow, if at a somewhat slower pace than before:
Public spending and revenue in the EU and the euro area – click to enlarge.
So there has been a modest improvement relative to the worst deficits seen at the height of the economic downturn in 2009, but deficits remain very large relative to the pre-crisis era. There is of course no sign whatsoever that the size of governments will shrink.
Concurrently, the ECB’s interventions have produced a sizable rebound in money supply growth since the 2011 low (it is no coincidence that the peak of the crisis coincided with a low in year-on-year money supply growth), but the growth rate has been declining fairly sharply of late. The current level of year-on-year money supply growth is still high relative to the lows seen in 2008 and 2011 shortly before the respective crisis situations became acute, but it is not higher than the level recorded in 2000, which presaged a considerable asset price bust and concomitant slowdown in economic activity as well.
Euro area money supply and its annual growth rate (blue line)Â – click to enlarge.
It is a good bet that if the recent slowdown in money supply growth persists, it will once again be reflected in declining asset prices and a slowdown in economic activity (note here that the activities that are negatively affected by a slowdown in money supply growth are as a rule of the wealth-consuming sort anyway).
Meanwhile, the total public debt load of 14 of the 18 euro area member nations remains above the ‘threshold’ imposed by the so-called ‘fiscal compact’ (formerly known as the Maastricht treaty limit):
European debt-to-GDP ratios, 2012 vs. 2013. Public debt in the euro area as a whole remains more than 50% above the limit (at 92% instead of the 60% threshold level) – click to enlarge.
Germany, Austria, Estonia and Latvia are the only euro area countries in which the government debt-to-GDP ratio has ever so slightly improved. The latter two are well below the threshold level anyway, two of only four member states which can boast of this feat (the other two are Finland and Slovakia). Every other government essentially became a tad more bankrupt.
