Deepening monetary woes in Eurozone periphery
Simon Ward
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Eurozone monetary statistics for September were disappointing, showing a further slowdown in six-month growth of real M1, in contrast to a pick-up in the US. Eurozone economic news has surprised positively relative to the US recently but the pattern may reverse over coming months, lending support to the US dollar.
Within Euroland, real M1 deposits continue to grow solidly in "core" economies while now contracting in the periphery (i.e. Greece, Ireland, Italy, Portugal and Spain), with the rate of decline ominously similar to early 2008 – see first chart. Stagnation or renewed recession would derail fiscal consolidation plans and could force several countries to access the untested European Financial Stability Facility. Sovereign spreads may be starting to sniff this scenario, with euro weakness to follow.
Peripheral monetary contraction is not confined to the smaller economies: after Greece, real M1 deposits have declined most in Spain over the last six months and are also now falling in Italy – second chart.
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