Eurozone economic woes suggest ECB's Draghi Plan isn't enough to stem debt crisis

Private business activity in the eurozone plunged at the fastest rate in more than three years, while consumer confidence also sank, according to “dismal” economic data that doused hopes the European Central Bank bond-buying plan would unleash a wave of optimism. 

By Louise Armitstead: Markit’s Purchasing Managers’ Index (PMI) dropped from 46.3 to 45.9 in August, well below the 50 level that marks growth. The European Commission’s confidence index sank to 25.9, it’s lowest level for 40 months.

The data showed the further development of a “two-speed” economy in the eurozone. Markit said Germany’s private sector rose to 49.7 in September, from 47 in August – a five-month high. But in France activity sank to 44.1 from 48 in August – the sharpest decline since April 2009.

Separately, Italy slashed its GDP forecast for this year. Rome said the economy was likely to shrink by 2.4pc, rather than the 1.2pc contraction that was forecast.

There was relief as Spain raised €4.8bn (£3.8bn) at a bond auction – comfortably beating its €4.5bn target. But traders said the enthusiasm showed the view that Spain was moving towards a bail-out, rather than a recovery.

Greece’s coalition leaders failed again to agree on how to reach €11.5bn of austerity cuts needed to secure the country’s next cash injection. Sources said the leaders disagreed on €2.5bn of cuts. 

Meanwhile, contagion was continuing to creep as Fitch warned that Finland’s prized AAA credit rating was not immune. The credit rating agency said: “If the crisis leads the government to deviate significantly from its current path of fiscal consolidation without addressing the need for reforms, we believe it would increase the risk to the long-term sustainability of its finances, thereby putting downward pressure on our sovereign ratings on Finland.”  Source