Despite Its Troubles, the Euro Area Is Making Progress - by by Jacob Funk Kirkegaard

Yes, the headlines from the euro area are discouraging. The region’s Purchasing of Managers Index (PMI) is falling again—to 45.9 in May, with even German levels down. The European stock markets are down. The euro has slid to 1.25 vs. the dollar, accelerating preparations for a Greek euro exit.

No resolutions of the political crisis came from an acrimonious if informal EU Council meeting. To paraphrase Charles Dickens’s famous comment about America’s propensity to declare doom, it seems as if the global media, financial markets, and pundits are to be believed, the euro area is always depressed, always stagnated, and always in an alarming crisis—and never was otherwise.

The future of Europe, however, will not be determined by the poor 2012 euro area second quarter economic performance. The drop in the euro’s value is good for external demand, and the likelihood of an actual Greek exit from the euro is much overblown.¹ The “informal EU Council” was never expected to produce “deliverables.” In other words, as usual, the euro gloom is exaggerated. In fact, the last week brought several encouraging developments.

Read more: RealTime Economic Issues Watch | Despite Its Troubles, the Euro Area Is Making Progress