I suppose there is some benefit to having an “official” recession period – standardizing comparison periods and all. But this is not truly a newsworthy announcement by any means. Some economists expect Germany to remain on the plus side of GDP growth throughout, but recent data does not really offer much hope for that hope.

“Word that both France and Germany had posted positive growth in the third quarter was quickly swamped by far less happy data. Even as it announced France had escaped predictions of a fourth-straight flat economy with its 0.2% Q3 advance, the official French statistics agency revised its previous second quarter figure from 0% to -0.1%—effectively taking away growth with one hand as it gave with the other. And while Germany matched France’s 0.2% performance, that activity marked a slackening of the 0.3% growth Germany had attained in the second quarter, and less than half of the 0.5% in Q1.”

http://world.time.com/2012/11/15/its-official-eurozone-enters-second-recession-in-three-years/

What might be more important is what I detect is a growing call for the weaker euro to “save” Europe from a deeper recession that every economist in Europe said in 2011 was going to be avoided because of those magical LTRO’s (does anyone even remember that EUR1 trln balance sheet expansion anymore?) The important takeaway from the now recognized economic contraction is, I believe, this:

“It’s astounding in this environment that the euro remains so over-valued that undermines export trade beyond the euro zone,” Touati notes. “No matter what else may go right over the next six to ten months, so long as the euro doesn’t drop closer to the $1.15 level (from a current $1.27 rate), any European recovery will be considerably handicapped.”

What would the US stock market look like at a EURUSD of $1.15? It would be ugly unless the primary currency correlation for stocks is broken (it has happened before, so it’s not unthinkable by any stretch). Currency wars aside, let’s not forget the importance of cross-currency participation in USD asset classes – eurodollar participation and hub and spoke. There is a strong financial component (on the downside) to devaluing the euro (which is why the ECB and Draghi have attempted to maintain its value) which goes directly against orthodox economics in terms of “stimulating” exports. Which side wins, and how will that uncertainty affect investment allocations and confidence across the multi-national banking system? Would a falling euro push money back out of Spain and Italy? Swiss 2-year is back below -0.20%, and German 2-year has been back to slightly negative yields since November 5.

Some evidence for this theory: US stocks peaked Sept 14, Swiss 2-year peaked at -0.079% Sept 17, German 2-year first of two highs of 0.106% September 14. EURUSD high of 1.3116 Sept 17.

European bond spreads and the desire to hedge currency risks have correlated with the EURUSD cross and US stocks a lot this year (and 2011 for that matter). The link is the hub and spoke of the eurodollar market and I think that the ECB knows this and is defending the price at a very real cost to the real economy (in Germany more than anywhere else). We have seen this dichotomy before (where what is best for banks is not as likely to be as good for the real economy) throughout the past five years and I think it is an inseparable feature of monetary dominance (thus my reference a few days ago to Japan’s 9 or 10 QE’s corresponding to 5 recessions in 15 years). So far since 2007 banks come first no matter the downstream consequences – the operative theory, really the primary ethos of modern central banking.

Why?  Central banks believe that banks are the economy, and the economy is banks.  I wrote about this in more detail in December 2011.

http://www.realclearmarkets.com/articles/2011/12/02/the_fed_is_actually_bailing_out_itself_99398.html

I doubt a second official recession (in either Europe or the US) will change this dynamic since it is the bedrock upon which modern economics sits.  Change the perception that the real economy can’t survive a bank withdrawal or downsizing and monetary “science” falls apart completely.