The research firm Markit finally confirmed what economists and politicians had feared. The September PMI of the 17-nation eurozone showed trouble. The final number is 49.1, with anything below 50 a sign of private sector contraction.
The news will raise concerns whether the EU’s strongest nations can bail out its weakest ones. The economies of France and Germany, at least, have to be able to weather a global slowdown. Otherwise the financial and political pressure on their leaders will increase.
The PMI figures, married with numbers that show the Greek economy and its attempt to cut its deficit were worse than expected, are the foundations of what has been a fear for several weeks now. Money for that European Stability Mechanism may not be forthcoming. The fund was supposed to have nearly $700 billion on hand by mid-2013. European Commission President José Barroso has pressed for the money to come in faster. He told the European Parliament last week, “We should do everything possible to accelerate the entry into force of the ESM.”
Barroso knows what everyone who tracks the trouble in Europe does. A fund created two years from now will be useless based on the rate as which the disaster in Greece has started to spread to larger nations. Moody’s downgrade of Italy yesterday is another sign that experts see contagion as a reality and not a forecast.
The bailout of the southern European nations needs a political resolve that finally seemed to have come together among the IMF, ECB, and financial ministers of the EU. The problem now is that they cannot afford to do what they have agreed to.
Douglas A. McIntyre
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