Key gauges of Germany manufacturing slumped in September, falling to a 15-month low as ongoing tensions over Ukraine weighed on the sector.  Markit’s purchasing managers’ index (PMI) for the sector dropped to 50.3, from 51.4 a month earlier. The reading is barely above 50, implying that the sector is expanding, but slowly. 

No analyst polled by Reuters expected a number this bad.

The most pessimistic expert forecast that the PMI figure would fall to 51, while the average analyst believed Germany’s PMI would drop to 51.2.  Germany’s factories are particularly exposed to any conflict between Russia and its neighbours, as well as the tit-for-tat sanctions exchanged between Russia and the EU.   Yes, it is difficult to imagine more stupid and counter-productive foreign policies than those pursued by the brain-dead European ruling class. Europe and Russia are natural allies, both geographically and in terms of commercial and energy interests. We must vote a new generation of leaders into office all across Europe, one which is not stuck in cold war thinking and glued to American energy policies and global militarism....The terrible thing about the huge losses being incurred by EU countries in the tit-for-tat sanctions by Russia is the feeling that the EU simply didn't think Russia would respond! Instead Poland, Greece and others have lost a large market for their agricultural products. France seems determined to destroy any future military (and no doubt civilian) technology sales to Russia. In the meantime Russia is seeking and finding alternative sources. So the Russian market is waving goodbye to the EU. (Interestingly, that good NATO member Turkey is one of the new sources.)...Meanwhile, just to ramp things up even more, the US is to sell cruise missiles to Poland which are capable of hitting targets in Russia.

There is a general asset price bubble in process. If you look at stats like GDP, production, exports, interest rates, bond prices and house prices the developed world's recovery is not based on innovation and production but debt.

Cash is flowing around the economy being printed or virtually created in vast amounts and then passed on at close to zero interest rates. This money is very expensive to get hold of if you are a regular person at credit card APR levels or very, very expensive if you go for payday loans. However money is cheap if you are a bank, billionaire or VC. Hence IPOs have become the casino of the rich.

If you have money at near zero interest rates then you are, in effect, just using other people's money. Mostly taxpayers since they are funding the sovereign debt. So normal calculations of investment and return dont apply. So what if your investment goes up and down because you borrowed the money from a bankrupt bank that got the money from a central bank that printed it.

It's not a bubble in the traditional sense because even if the price collapses the only people who lose are are the taxpayers in different countries funding the debt....

Who allocates long-term state funding for new ventures and enterprises? Name any that have been successful. Bureaucrats are no good at picking winners.  Europe does not have many real venture capitalists, as in Silicon Valley. Most of those who call themselves venture capitalists are really into funding later stage ventures for growth rather than technology start-ups at inception.

Most of the European success stories actually got themselves funded despite these handicaps, because of the sheer market appeal of their offerings. Irrational exuberance is a wider market phenomemon, not just restricted to tech bubbles. It also happens in property, as a glaring example. The reason is always market manipulators - pimp and dump tactics by market gatekeepers, for example investment broker firms who deal in tech stocks and banks who lend for property bubbles.

Spending money wont save the EU. If you want to save the EU then try creating wealth rather than destroying it through taxes, regulations and stupidities like green energy scams. Do you morons seriously think that you can power an advanced economy with windmills! By creating wealth and encouraging business and investment you can create employment rather than unemployment. The EU has been destroying wealth and discouraging business and investment for decades (Exhibit A - France, Exhibit B - all the others), and still the idiots learn nothing, they refuse to change.

How did this guy ever win the title 'Super Mario' when he doesn't understand the fundamentals of economics?

"Mr Draghi suggested that countries in Europe should be encouraged to increase spending within the existing rules designed to reduce deficits and rein in debt in order to boost economic reform and create more jobs"

Please correct me if I am mistaken , but this statement seems like double speak or BS nonsense.

On the one hand 'the existing rules' says no spending past 3% (the fiscal compact) and then he says they should be 'encouraged to 'increase spending' !!

WTF, France et al are already way past 3% . So what on earth is he talking about?

Spending can't be increased.

He makes no mention of reducing the welfare budget for example, (unless that means " national structural policies") ,so I can only assume he is just 'talking the talk!'

His LTRO and the newer version of offering cheap loans do not seem to working.

PARIS – There is something misleading about the current political excitement on both sides of the Seine. The ouster of three rebel ministers by a surprisingly firm president, a government reshuffle, a standing ovation delivered at Medef, the employers’ union, for the Socialist prime minister who dared to proclaim, “I love business!”: All the action was set in Paris. Yet one could fantasize that, some 900 kilometers away, Berlin’s invisible hand was quietly at play.

Germany determines so much of France’s economic life these days that it seems like the proverbial 800-pound gorilla in our political process. Last week’s crisis erupted when the economy minister, the leftist Arnaud Montebourg, called for an alternative economic policy, in an interview with Le Monde. Nothing really new there, but he went one step too far when he launched an attack on Germany. “We need to raise our voice,” Montebourg said. “Germany is caught in a trap of austerity that it has imposed across Europe.”

Prime Minister Manuel Valls didn’t wait long to let it be known that Montebourg had crossed a “yellow line,” when his office declared: “An economy minister cannot use such words … to talk about a European partner.” Unlike President Obama’s red lines, yellow lines in France are usually enforced. Two days later, Montebourg was out.

To France, Germany is not just any “European partner” – it is the most important partner. Together, these two founding members of the European Union are supposed to form “an engine,” “a tandem,” “a couple.” They are the pillars of Europe.

But the Franco-German engine has stalled. Battered by the euro crisis, the famous couple is decoupling. The imbalance between the German economy, strengthened by reforms launched by Chancellor Gerhard Schröder well before the crisis struck, and the French economy, unable to recover its competitiveness, is so deep that it is ruining the whole European dynamic.

On Aug. 22 the German newspaper Handelsblatt dedicated a cover story to “The French Patient” and “the economic decline of what used to be a proud nation.” In “A Tour of France: Examining the New Sick Man of Europe,” Der Spiegel this summer poked fun at those French people dreaming of having “la mannschaft” instead of “le malaise.”

Fifteen years ago, Germany was “the sick man of Europe.” Today it is France’s turn. One difference, though, is that 15 years ago the common currency, the euro, was just being launched. Today both economies are much more integrated and must enforce a common budgetary policy. Thanks to the strength of the German economy, Berlin has the upper hand.

President François Hollande has gone through phases about this. Early in his term, he antagonized Chancellor Angela Merkel by trying to head a group of Southern European countries favoring pro-growth policies. It was a disastrous mistake. A master of compromise, he then tried to recover using his left wing, allowing Montebourg and his friends to vent their anger at home against Bismarck and Merkel’s “intransigence,” while ostensibly trying himself to play the perfect partner in the Franco-German couple. That didn’t work either.

Desperate to get the French economy back on track, Hollande is trying something new: a government unanimously committed to his vision of structural reforms and a team that won’t utter a word against the German economic line.

That doesn’t mean that Hollande has given up hope of extracting more flexibility from Merkel on the pace of deficit reduction. The great debate on austerity versus growth is closing in on the chancellor, as Nobel Prize laureates, newspaper editorials and now, more importantly, Mario Draghi, the president of the European Central Bank, advocate demand-side policies to complement structural reforms in order to fight unemployment.

Those who wonder why France doesn’t just do what Germany did under Schröder over a decade ago forget one crucial factor: Back then, the economy was growing; cutting the budget deficit in a zero-growth environment is a different challenge. Even the German economy is slowing down. The French president is betting that, having provided Merkel with all the evidence that this time he finally means business, Berlin and therefore Brussels will give him some breathing space. Halfway into his term, Hollande has come to acknowledge the power of Germany. Today the real economic leader of the eurozone is Wolfgang Schäuble, the German finance minister, who has held the job for five years. It is Schäuble who opposed the candidacy of Pierre Moscovici for the top economic job at the European Commission because of Paris’s record on deficit reduction. (After much wrangling, Merkel finally compromised: Moscovici should get the post, but a more fiscally orthodox Finn, Jyrki Katainen, will be placed above him as vice president of the commission.) It is Schäuble with whom Michel Sapin, the French finance minister, confers at every important political juncture, as he did again last week after the government reshuffle.

Yet it would be too simplistic to see this process, as the French left tends to do, as merely humiliating subservience. Political intertwining between France and Germany cuts both ways: Germany needs France as much as France needs Germany. When German diplomats, businessmen, politicians or even journalists express their deep concern to French colleagues about the Gallic crisis, they are actually sincere. A weak France is not in Germany’s interest, not only because France is its first customer, but also because the last thing Germany wants is to be leading alone. The way Merkel carefully includes Hollande in her dealings with President Vladimir Putin of Russia is revealing: Even though she is in the driver’s seat on the issue of Ukraine, generally on foreign and security policy she wants to be seen as working with France.

The Germans would love to freely enjoy their successes, unhindered by the burden of history. The eurozone would be much better off powered once again by a dual engine. For France and Germany, recoupling is the only option – if only their leaders could help.(source NYT)

A European Central Bank measure designed to stimulate the flagging eurozone economy has seen a low initial take-up by banks.

The cheap loans for European banks have been designed to encourage lending to business. But out of total loans of 400bn euros (£315bn) available on Thursday, only 82.6bn was taken up by 255 banks.

However, banks may be waiting for separate ECB measures due in October, analysts said. Cheap loans to banks were part of a package announced in June designed to support lending and the economy.

The loans - called "targeted longer-term refinancing operations" (TLTROs) - see the banks pay 0.15% annual interest for up to four years. Money market traders had been expecting banks to take up between 100bn and 200bn euros of TLTROs this week, with further interest in December, when banks get a second chance to apply for the cash.  Banks may be wary of taking up the loans before imminent ECB-led health-checks of the banking sector, said Karel Lannoo, chief executive of Brussels think tank the Centre for European Policy Studies.

"The European financial sector continues to be weak," said Mr Lannoo. "There may be a stigma because the markets are waiting for the AQR (asset quality review) in a few weeks."

However, banks may be waiting for details of a separate ECB programme to buy asset-backed securities, which are due out in October. "We would warn about drawing too strong conclusions from the September round," said ABN Amro analyst Nick Kounis.

The “troika” of the International Monetary Fund (IMF), European Commission and European Central that bailed out the Greek economy are waiting for further austerity measures before the IMF disburses a further tranche of €3.5bn in loans. Athens is currently awaiting the final tranche of €1.8 billion euros from the European Financial Stability Facility. 

Greece must also put forward proposals to the troika on how it will meet a projected €2 billion budget gap in 2015. The index reshuffle was made to the S&P Dow Jones emerging markets BMI index and at the same time Qatar and the United Arab Emirates stock indices were promoted from frontier to emerging markets status with a weighting of 0.9pc and 1.0pc in the index respectively.  The reclassification by S&P Dow Jones Indices follows the move by the more widely followed MSCI and Russell Indexes last year who also downgraded Greece to emerging market status. The FTSE index has Greece on its developed market watchlist. 

The changes to the S&P Dow Jones emerging BMI index will become effective on September 22 ... The Greek government have done nothing to restructure their public sector and are now talking about tax cuts! The EU is terrified because Syriza are leading in the opinion polls and are saying that the will refuse to pay back any of their loans (until economic prosperity returns LOL) and will restore all wage and pension cuts to the public sector. They are also talking about a campaign to cause the break up of NATO should they gain power. Greece has been downgraded to an emerging market by S&P Dow Jones Indices, in a blow for the country which was badly hit during the financial crisis.  The Greek market was assigned a weighting of 0.8pc by S&P Dow Jones Indices making it a relative minnow in the emerging market index compared to China which constitutes about a quarter (24pc) of the measure and Brazil and India which make up 11.3pc and 10pc respectively 

The shift could mean that pension funds and more cautious investors will have to move out of the Athens stock index. Greek stocks opened yesterday down 0.4pc to 1,156 on the Athens stock exchange and the bond yield on Greek debt increased, meaning that investors view it as a riskier prospect.

The downgrade comes as Greek government officials held talks in Paris at the start of the month to demonstrate that its austerity measures are on track. The talks were organised ahead of a full sixth review of Greece’s austerity programme to be held by troika officials in Athens at the end of this month.

The Greek economy has to fix its finances under the terms of two bailouts worth a combined €240bn

Hollande, whose approval ratings stand at just 17%, needs results, and fast. But the chances of him achieving them look slim. It is not just that the latest business surveys make grim reading – though the economy does appears to be going backwards in the third quarter. It is not just that the amount of slack Merkel will cut him is likely to be limited. And it is not just that the European Central Bank has been painfully slow in waking up to the threat of deflation.

Rather it is that for all its many problems, France remains a prosperous and – for those in work – comfortable country. There is just no appetite for any of the more radical proposals, be they structural reforms, abandoning austerity or leaving the euro.

David Marsh of monetary thinktank Omfif says: "The political and economic position in France is parlous. Hollande will now be under attack from two sides: from the right wing, both his traditional conservative rivals and the revitalised Front National, and from his own socialist party, where Montebourg and his allies, unencumbered by government office, will be quick to regroup."

The risk for Hollande is clear. He is neither Margaret Thatcher in 1979 nor Blair in 1994. He has levers but seems unwilling to pull them. Clause IV moment? No chance. Lame duck moment? Much more likely.