September's industrial new orders number for the Eurozone was very bearish indeed but it looks like in October things improved slightly from there. I continue to think that this is the beginning of a new European recession but the jury is still out on its depth and length. The critical thing there will be whether the European authorities manage to avoid a disorderly failure of any large governments or financial institutions. If they continue to muddle through, as they have been, with neither a clear and convincing resolution of the crisis but nor with allowing critical institutions to fail, then I expect a longish but not incredibly deep recession. On the other hand, if they allow some kind of "Lehmann-type" event to occur then the crisis could turn very abrupt and the recession get much deeper in a hurry.
In other news - December inflation is estimated at 2.8% - still not particularly low.
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I thought that the Euro was going to break up in the nearish term. The Sarko Trade has forced me to abandon that position. I now think the EMU could stumble along for years.
So perhaps I am compensating when I say that a breakup is quite possibly better than the alternative, and the alternative is a European version of Japan's "lost decade":
http://en.wikipedia.org/wiki/Lost_Decade_%28Japan%29
Two decades of lost growth is a big deal.
Krugman would say Japan's problem was a liquidity drap. The Economist long argued it was the result of the government refusing to reorganize its insolvent banks. Either way, the same thing looks to me like it will emerge in Europe if the EMU holds together.
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