While everyone awaits Germany's bowing to European pressure to share in the supposed wealth, the sad truth is that the clear line between core and peripheral economies is blurring every day as the lead-boots of Portugal, Spain, and Greece, drag 'until-recently high-fliers' Germany and France down to the bottom. The release this week of European Manufacturing Confidence data shows that all the nations are now contracting as core converges DOWN to periphery in a vicious circle. This is critical as suddenly the clock for a Euro-break-up is speeding up: every day that Germany delays to intervene and acquiesce bailout the PIIGS, the PIIGS implied-leverage declines as Germany is being dragged to their level - and thus 'unable' let alone 'unwilling' to share some burden.
At the end of December 2010, the difference between the weakest and strongest (Greece and Germany) manufacturing confidence was 35 points apart - easily the widest on record - as hope for a decoupling and strong core supporting the periphery prevailed.
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Now that difference is down to a measly 12 points and rather notably all the euro-are members are now negative.
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Charts: Bloomberg