Europe Is Booming, Except It's Not

Authored by Jeffrey Snider via Alhambra Investment Partners,

European GDP rose 0.6% quarter-over-quarter in Q3 2017, the eighteenth consecutive increase for the Continental (EA 19) economy. That latter result is being heralded as some sort of achievement, though the 0.6% is also to a lesser degree. The truth is that neither is meaningful, and that Europe’s economy continues toward instead the abyss.

At 0.6%, that doesn’t even equal the average growth rate exhibited from either the late 1990’s or middle 2000’s. Straight away one of the so-called better quarters is already below average by historical comparison. That would suggest Europe’s economy is still struggling.

Because even these positive quarters are never all that positive, there can never be enough momentum let alone growth to make up for when there was clear, linear contraction. The economy shrinks and though GDP turns positive afterward, even for eighteen straight quarters, the shrinking isn’t actually concluded.

The gap to Europe’s pre-crisis baseline is actually substantially larger now after four and a half years of steady “growth” than at the bottom of the re-recession trough reached in Q1 2013.

From the perspective of steady growth and successful monetary policy, ECB officials might expect that inflation would start to behave according to the central bank’s target. It hasn’t, and the latest results for October 2017 suggest even more problems along these lines.

The headline HICP decelerated to just 1.4% last month, while more ominously the “core” rate dropped to less than 1% again. The former keeps moving further away from the target when it was expected to do so only for a few months in the middle of this year. Once the oil price base effects were digested around April and May, the ECB’s models predicted gently accelerating inflation reaching (in sustained fashion) their 2% goal by early next year.

The core rate at just 0.9% indicates more so the opposite possibility, continuing the global “conundrum.” Despite ongoing massive ECB intervention supposedly in euro “money”, these operations bear no correlation at all with inflation and therefore effective monetary conditions in the real economy. The lack of inflation continues to advise the non-linear contraction scenario described above with regard to the GDP gap.

The issue is, as always, monetary definitions, which in Europe, as everywhere else, is more than an academic matter. The ECB through its various LSAP’s through the years created bank reserves as a byproduct and nothing more. These are but one form of bank liability and a mostly useless and inert one at that. It is little wonder that the real economy fails to respond to what in the mainstream is wrongly characterized as “money printing”; and therefore why there continues to be expectations consistent with money printing but widespread results contrary to that process.

From a more direct monetary view, such as German 2s, there is no inconsistency at all. Even though the ECB will be tapering its bond purchases, and therefore bund purchases, too, German federal yields are trading in the “wrong” direction from what QE tapering is supposed to reflect.

In fact, more negative 2s is instead indicative of higher liquidity preferences, which, for the terms of this discussion, is consistent with a struggling economy unable to generate momentum (and therefore core inflation). That’s why the “yield” moves contrary to fewer ECB purchases because that factor doesn’t matter nearly as much as the other. It’s actually been this way for several months now, going all the way back to the end of June.

You don’t find any of this in mainstream discussion about Europe, only the brief mention of this inflation mystery, and the related confusion over the political situation there, all dismissed easily in the context of the future economy that (always)looks to be so bright (but never is).

Because the ECB is tapering QE, that’s all that matters to set the conventional narrative. Europe is booming because Europe has to be booming. Except that it isn’t; not even close.


Crazy Or Not Five Star Wed, 11/08/2017 - 05:30 Permalink

Yanis Varofakis has made some great observations on what direction the ECB EC EU could take - but won't for similar reasons that there were no major prosecutions following the March 2008 crash in Wall St. In the meanwhile locations like Catalonia, Venice, Lombardy and Belgium try to step their own ways to get one less mouth at the trough. In the end Europe will tank, because that whats happens in frauds. Then the guns will come out. and a very small margin will continue to make money. It just won't be pretty watching it unfold.…

In reply to by Five Star

2Blondboys Crazy Or Not Wed, 11/08/2017 - 06:01 Permalink

Just read the article. Where I disagree strongly is about the deep state. The populist movement want the deep state abolished. We don’t want to penetrate to exploit. It seems here in the US the left does not even admit there is a deep state. They seem quite content it exists. They are especially happy because they thwart Trump.

Europe has no chance of unity which means some sacrifice for others. Spain is proving that eventually the prosperous get sick of paying more taxes for the less prosperous. Northern Italy is getting sick of supporting all of Italy. Here in the US we always hear how CA is paying so much more into the federal government supporting such states like Mississippi. Maybe, except that CA has twice now just this year asked for federal money to pay for dams and fire damage.

Unity seems to mean everybody do everything one way only. Who decides that? The ruling class?

In reply to by Crazy Or Not

Bobbyrib 2Blondboys Wed, 11/08/2017 - 06:22 Permalink

Basically California is asking for some of its money back from its forced donations to lower taxed states via the Federal government. I imagine the "More Please scene" from Oliver Twist with California being Oliver and the federal government being the outraged fat guy..except Oliver would have paid for and made the food and the fat guy just steals it and gives it to everyone else too. Reminds me of socialism..

In reply to by 2Blondboys

Crazy Or Not 2Blondboys Wed, 11/08/2017 - 08:49 Permalink

Europe with it's language diversity and various Nations holding differing architype perspectives is far harder to unify an argument than in US.Tech savvy millenials (yeah I know its a shocker) are more aware of Deep State as a mechanism than older generations....because they frequent chatrooms (mostly in English) to catch up on virus patches/ hacks etc. and come across the narrative there - or in the cyber activism crossover events found in European metropolitan hubs.  My take is there's basically too many mouths at the trough for growth to flourish. Its mostly green shoots and fits and starts with very few lionised exceptions. Holding the EU unity narrative together is therefore challenging. Le Pen, Farrange, Scotish, Catalan Independence etc will all rear their heads where State policy is shown to fail to deliver. Bailing from the whole Euro show is a harder pill for MSM reared audience to swallow, but I believe they'll get there as the longer term plan for 90% of citizens becomes more and more apparent.

In reply to by 2Blondboys

Weisshorn Five Star Wed, 11/08/2017 - 05:54 Permalink

Tha (((cabal))) has been stealing all productivity increases since the US, and thus the entire west, went off of the gold standard.  Now that the dollar is unbacked the equation is roughly:productivity increase = real inflation + interest rates - decrease in real wealthThis applies to the enture currency area and it means that all productivity increases have been stolen from the masses and siphoned off by the cabal.  In Germany where productivity increases faster than in the PIGS, the people have been able to keep up with real inflation, and the middle class is muddling through.  In the Med areas, productivity hasn't increased enough to provide increasing returns to the EU plantation owners, so the owners are taking it out of the middle class through decreases in their real wealth.  

In reply to by Five Star

Weisshorn Wise Gold Wed, 11/08/2017 - 05:45 Permalink

The Germans were completely castrated from 1945-Nuremburg.  Nothing "Germany" does is for the good of the German people.  Everything is about that (((small sliver of dual passport holders))) and their conquest of the planet.The EU is clearly not for the good of the Volk, because all their industry has been globalized, including especially all their technology.  If Germany had been run for the good of the Volk, then all that technology and all the smaller supporting industries would have remain in the country.  Tearing all that knowhow out of the fatherland and putting it under the control of the cabal was simply a part of the castration process.

In reply to by Wise Gold

UselessEater roddy6667 Wed, 11/08/2017 - 07:50 Permalink

They're doing fine just like satan Soros who played both sides and won.....…

There are 751 members of the European Union’s parliament.  Like a slave-master, George Soros buys, controls and pimps more than one-third of EU politicians; many hold dual-citizenship. Add media editors and journalists, directly or indirectly in the pay of Soros, and you have the largest brothel outside the United States.The Soros list has recently been published. The document lists 226 Members of the European Parliament (MEP) from all sides of political spectrum. These include former President of the European Parliament Martin Schulz, former Belgian PM Guy Verhofstadt, seven vice-presidents, and a number of committee heads, coordinators, and civil servants. These rent boys promote the ideas of Soros, such as bringing in more migrants, same-sex marriages, integration of Ukraine into the EU, and provoking Russia.

In reply to by roddy6667

Let it Go Wed, 11/08/2017 - 05:19 Permalink

The Euro-zone faces a slew of problems but in my eyes, two of the most pressing are that Italy is insolvent and Spain is coming apart with Catalan separatists defying Spanish Prime Minister Mariano Rajoy. Financially Italy is the Euro-zone's Achilles heel, not only is Italy insolvent (it’s not alone in that), but there’s a gigantic effort to hide the depth of its problems. The article below explores these issues. http://Euro-zone Problems-Italy-Spain And Bad Debt.html

Last of the Mi… Wed, 11/08/2017 - 06:43 Permalink

The whole point of the EU was to make sure there is a positive trade balance with Germany and a negative one with everyone else. The effect is obvious, draining the other countries of assets one EU coin at a a time, never ending until the central unit (Germany) owns everything. It's a bankers dream, sovereignty through financial trade without a shot fired. Billions in loans that can never be repaid insure complete financial control and total bankruptcy with a steady decline in living standards for the member states. Uncontrolled immigration insures left leaning voters that unknowingly commit to the current power structure without knowing the fine details of the member states that will never regain their power. Never, EVER trust someone wanting to give you something for free to be repaid later at an unspecified date with a shit ton of papers to sign. It was a con game from the get go insuring the largest percentage of the money no longer moves within circles individuals have access to. 

Fahq Yuhaad Wed, 11/08/2017 - 08:12 Permalink

Fuck the inflation price targets of the central bank robbers and politicans.This asslicker Snide-r perpetuates their effrontery with quotes like"ECB officials might expect that inflation would start to behave according to the central bank’s target" "while more ominously the “core” rate dropped to less than 1% again." Aside from the issue of manipulated official price data: which normal wage earner contemplating shrinking net income and higher taxes wants 2% inflation instead of 0.9%? None of course, but the world elite economists insist inflation is good for everyone. Politicians don't want deflation because they can't tax it and central bankers are in bed with them.

ThinkAgain Wed, 11/08/2017 - 07:11 Permalink

No growth is stagnation. Financial system is based on growth. See… should forget financial capitalism and go for productive capitalism. See yes QE can be a tool in that. But Productive QE, not (malperforming) Financial QE. See

falak pema Wed, 11/08/2017 - 08:11 Permalink

Further my comments written in the discussion around the Pepe Escobar post concerning the Saudi meltdown, here is an article that summarises well what the Eurozone has to do in the coming benign interim period-- between the past firestorm around Greece's fleece and Brexit's defiant release and the NEXt financial cum  geopolitical reset-- which is something inevitable -- as the Pax Americana matrix crumbles-- inspite of the rumble in Lebanon all the while the Sunni Sauds tremble :

EddieLomax Wed, 11/08/2017 - 08:35 Permalink

One thing I don't get about this article is the assertion that QE was not money printing and people were wrong to call it that.I can understand that the money has not flowed out into the rest of the economy, but isn't that just a question of time?  Printing money does not immediately mean hyperinflation, but consequences always arrive in the end.For the UK for example the low interest rates have destroyed any culture of saving, less people will save their money in sterling at least but what will the future consequences of that be?  When all wealth is either in the stock market (good) housing (bad - its a depreciating asset in reality as it requires upkeep) and out of the country (gold, silver etc) then what consequences will that have?The money in saving accounts used to have an effect, my guess is we'll see more inflation as the money gets spent quickly, or shifted out of sterling.I guess this also explains bitcoins rise, I do not believe it would have been nearly as successful if we could earn 6% interest from a savings account.

GreatUncle Wed, 11/08/2017 - 09:07 Permalink

Oh but it does not need to be this way /S.Implement the true economic model they created it is NIRP stunningly realised when you have near 0% growth.They either fleece you through deflating your value OR failing that NIRP.They are the same but when we had the interest rates of over 20 years ago nobody noticed.Keynes is deflate the debt and with irt economically destroy the population or NIRP.Now how far can NIRP go as a %? 100% /S where anything you have is stolen.