The performance of the worldwide manufacturing sector remained very weak in February. Although the JPMorgan Global Manufacturing PMI rose further from December’s record low, at 35.8 it was still well below the critical no-change mark of 50.0. Rates of decline eased for production and new orders, but accelerated to reach a new survey record for employment.

“The PMI edged higher for a second successive month in February. The data are still pointing to marked declines in output and new orders, but the gains in these indexes indicate that the rate of contraction has begun to ease in global industry. Production cuts are likely to remain deep near-term while companies reduce inventory.” David Hensley, Director of Global Economics Coordination at JPMorgan

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Orphanides, Athanasios Orphanides, ECB governing council member, and current governor of Cyprus’s central bank. So the 16 country euro bloc is now being run from Cyprus. Ben Sils has the story:

A former Federal Reserve economist who made a name for himself telling his superiors they were wrong is now taking on European Central Bank President Jean-Claude Trichet.

Athanasios Orphanides, the governor of Cyprus’s central bank, was the first ECB official to argue in favor of zero interest rates, challenging Trichet’s position that cutting them so low would have “drawbacks” and should be avoided. Now, investors and economists are betting Orphanides, 46, is winning the argument as the euro region suffers its worst recession since World War II.

The ECB “can’t stand on the sidelines and use some weird voodoo economics,” said Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London. “Over time, the power of the right argument tends to win out over the wrong.”

At least seven members of the ECB’s 22-member Governing Council have lined up behind Trichet as they struggle to agree on new tools that would be needed with zero rates. Still, some have started to warm to the idea of deploying all the ECB’s rate ammunition and turning to unconventional methods, suggesting Orphanides may be securing support.

Bond markets expect Orphanides to prevail: Yields on two-year German bunds have fallen to their lowest level since at least 1990. All 55 economists surveyed by Bloomberg News predict the ECB will cut its main rate by a half-point to a record level of 1.5 percent on March 5.

Of course, the fact that Ben and I shared a very congenial cup of coffee last month in my favourite bar in Barcelona is entirely coincidental to all of this :).

Well if you want to set off a further wave of speculative contagion, here exactly is how to do it:

European Union Monetary Affairs Commissioner Joaquin Almunia said “there are risks in the banks” of eastern, southern and central Europe. “The assets of these subsidiaries of foreign banks are being impaired because of the crisis,” Almunia said at an event in Brussels today. Across the EU, “we need to have sound balance sheets in the banks to restore the credit channels.”
Bloomberg

Isn’t it time this guy was replaced, he is definitely on the liability rather than the asset side of the balance sheet? Helloo, anybody there?

Oh, and yesterday, according to Dow Jones News Wire we had this performance:

“Member States that have not done so should strive to meet the criteria for euro adoption,” Almunia said at a conference in Prague. The euro “provides a considerable shield from the worst effects of economic turbulence” and leads to better trade and financial integration and more competition, he added. Almunia said that an expanded euro area would have to go hand in hand with wider surveillance of national economies “in order to anchor stability and prevent the build up of macro-financial risks.”

What the hell is he going on about here? Is he suggesting that people haven’t been striving to join? What does he think they have been doing in Eastern Europe for the last 8 years. Or is he announcing a change in policy, that we will offer the carrot, and if they jump hard enough so they can bite it then in they will come, behind our defensive shield? Really the man is completely useless. As Krugman said yesterday, what IS the weather like on his planet, maybe we could all go for a visit.

Well Estonia just set a new record (at least for the EU) this time round, for the sharpest year on year contraction in industrial output seen to date (although still below Ukraine’s 34.1% January year on year contraction, as Ron points out in comments). The Great Depression II is evidently now among us, and it is currently visiting Estonia.

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It’s a depressing spectacle: on both sides of the Atlantic, policy-makers just keep falling short — and the odds that this slump really will turn into Great Depression II keep rising.

In Europe, leaders rejected pleas for a comprehensive rescue plan for troubled East European economies, promising instead to provide “case-by-case” support. That means a slow dribble of funds, with no chance of reversing the downward spiral.

Oh, and Jean-Claude Trichet says that there is no deflation threat in Europe. What’s the weather like on his planet?
Paul Krugman, yesterday

What follows here are simply a few charts to illustrate further the argument I developed yesterday as regards the significance of the deflation threat which now exists in the eurozone. The argument is that the ECB is once again being far too cautious, and risks allowing the entire eurozone to entire a deflationary cycle which may prove to be a lot harder to get out of than it was to get into. In my view the ECB should bring the refinancing rate close to zero % at next Thursday’s rate setting meeting, and then explore what measures can be taken to introduce a zonewide version of US/Japan style Quantitative Easing as quickly as possible.

The key argument I am presenting is that it is a mistake to focus at this point on what is happening to energy, food and other commodity prices. The key issue is what is happening to core prices, and what will continue to happen to them as output contracts further. The other side of the coin are inflation expectations, and as we will see below these are now falling rapidly across Europe. It is very important at this point that these expectations do not get “locked in” to price fall expectations. Continue reading →

I’ve got it. Germany has finally encircled itself. With 10 countries out there desperately looking for help from the East, 5 (including Austria) about to do so from the South, and two more (the UK and Ireland) from the West, news now comes in that one last group of walking wounded have finally made their way into that hastily erected field hospital – the Scandinavian countries. Perhaps all that is left is for Germany itself to finally throw the towel in and turn to the Union for help. Go to it France! Continue reading →

Well reading the press this morning it would be fairly easy to reach the conclusion that nothing really happened yesterday in Brussels, and that a great opportunity was lost. The latter may finally be true, but the former most certainly is not.

Let’s look first at what was not decided on Sunday. The leaders of the 27 member countries in the European Union most certainly did not vote to back a proposal from Hungarian Prime Minister Ferenc Gyurcsany for a 180-billion-euro ($228 billion) aid package for central and eastern Europe. They did not back it because it was not even seriously on the agenda at this point. These people move slowly and we need to talk them throught one step at a time. So what was on the agenda. EU bonds for one, and accelerated euro membership for the East for a second. And once we have the EU bonds firmly in place, then that will be the time to decide how we might use the extra shooting power they will bring us (boosting the ECB balance sheet would be one serious option they should consider, see forthcoming post from me and Claus Vistesen). That is when the emergency blood transfusion Gyurcsany was rooting for might come into play, but on this, as on so many items, the details of how we do what we do as well as the “what we do” will become important, so the moves we do take need to be well thought out, and systematic, they need to get to the roots of the problem, and not simply respond to problems on a piecemeal, reactive basis. Continue reading →

It appears that many of us have had quite a bit of a weekend these past few days. Sitting here in Barcelona’s airport on my way home from a whistestop visit I can happily look back at some very nice dinners and conversations in the company of friends and colleagues as well as the odd stroll down La Rambla. I can also look back at some nice cultural experiences in the form of trips to the Museum of Contemporary Art to see the exhibitions of Thomas Bayrle, Joan Rabascall, and Cildo Meireles and a visit to the National Museum of Catalonia where I only managed to see but a small bit of its extremely well endowed selection of Catalonian painters not to mention their fascinating display of church frescos and artifacts.

All in all, a most satisfying and enriching weekend for me.

However, not everyone would be able to say the same thing I’d imagine; at least not with a straight face. I am of course thinking about the big EU summit on Sunday where the lot of European leaders met to discuss the economic situation, how to deal with it, and ultimately how to avoid the whole European edifice collapsing under their feet. Continue reading →