THE European Central Bank has ridden to the rescue, the yields on Spanish and Italian 10-year debt are back below 5%, and all is well again, no? No:
Euro-zone unemployment continues to hit new record highs. Across the single-currency area, the rate rose from 10.6% to 10.7% in January. German unemployment actually moved up a bit, and the rate in France is back in double digits. The levels for Ireland, Italy, Portugal, and Spain are, respectively, 14.8%, 9.2%, 14.8%, and 23.3%. All represent increases from December.
In February, manufacturing activity across the euro-zone continued to contract, albeit at a slower pace than in January. The best performances were in the north; German activity dipped a bit, but declining activity in France has come to an end, for now at least. Contraction continued in Italy, Spain, and Greece. In Spain, the pact of decline actually worsened in February. And in Greece? Well, see for yourself:
Greek manufacturing activity has contracted for 50 consecutive months, and yet as of February the pace of decline was the worst in its history.
It is difficult to pay your debts when your economy is shrinking. The worse peripheral recessions become, the more markets may fear a Greek-like outcome for others. Italy looks surprisingly resilient these days. Unfortunately, the same cannot be said for Portugal and Spain, two big dominoes.
Beyond financial crisis worries, it’s worth pointing out that there is a substantial human costs to long periods of economic weakness. European society and politics will be the worse for this outcome. While we may thank Mario Draghi for preventing a sudden euro-zone collapse, it should be clear that the ECB ought to be acting far more aggressively to fight what is clearly now a euro-zone recession.