The Week in Review: Europe Stalemate, U.S. Weakness

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While a stalemate on a restructuring of Greek debt has caused uncertainty in Europe, negative economic indicators in the U.S. are causing many analysts to rethink their optimistic view of the world’s largest economy.

Several times throughout the week, Greek and German officials both officially and unofficially signaled that they were unable to come to an agreement on the terms of a debt restructuring, with German hardliners insisting that Greeks continue to cut spending and increase their current budget surplus. The Greek government, on the other hand, is insisting for a debt repayment plan tied to GDP growth, which would effectively keep the country from falling into another recession.

On Thursday, Germany officially rejected the Greek proposal in what some analysts have called a hostile response to the Mediterranean nation. German Finance Ministry spokesperson Martin Jaeger dismissed the Greek proposal as an unacceptable attempt to renegotiate financial terms despite not qualifying according to rules put in place by the European Union.

Saying the Greek proposal does not lead "to a substantial solution,” Jaeger dismissed the Greek offer. “In truth it goes in the direction of a bridge financing, without fulfilling the demands of the program,” he said.

Greek Finance Minister Yanis Varoufakis has repeatedly said the Greek situation is a humanitarian crisis in which homeless and starving Greeks do not have an opportunity to improve their standard of living. However, on Wednesday Varoufakis said the government would continue to negotiate with the German side on a deal.

"The application will be written in such a way so that it will satisfy both the Greek side and the president of the Euro group,” he said.

Eurozone finance ministers will meet Friday afternoon to try again to come to an agreement.

U.S. Weakness

Uncertainty about Greece has led many economists to praise the U.S. as the strongest performing economy in the world, on a relative basis, as falling commodity prices challenge emerging markets and a slowdown in China makes the U.S. appear to be a standout exception thanks to a strong economic recovery.

Several data points released this week bring that narrative into question, as industrial production gains remain weak and housing activity fell substantially in January, falling far short of expectations. 

The Census Bureau announced that new building permits fell 0.7% on a month-to-month basis in January, while single-family houses saw a 6.7% fall in new home starts. Total housing starts of 1.07 million fell short of expectations, driven mostly by the decline in single-family units.

In a separate report, the Mortgage Bankers Association saw both purchasing and refinance activity fall in the latest weekly survey. MBA Chief Economist suggested that rising interest rates was driving the fall.

While the housing sector weakened, industrial production also disappointed, with a 0.2% month-over-month rise in industrial production in January, below expectations. A rise in mining productivity contributed to most of those gains, which also saw capacity utilization gains of 9% on a year-over-year basis. However, industrial capacity utilization remains below its historical norm, indicating manufacturers are pessimistic about near term consumer demand.