This Great Graphic was posted on Sober Look and was taken from Markit and J.P. Morgan. It depicts what we have sought to describe; namely the under performance of France.
This chart shows the euro area manufacturing PMI and France's performance. While activity in the area as whole is improving, France has continued to deteriorate.
We suspect this divergence lies at the heart of many challenges the euro area faces. France's inability to keep up with Germany has exacerbated the divergence of national interests. France's inability to provide a check on Germany is partly why the euro area is a broad union, including the periphery, as opposed to the hard core, of Benelux, Germany, Austria and France.
French bonds have been tracking their German counterparts closely. They trade like core bonds not periphery bonds. However, we remain watchful. Previously, as France slipped further behind Germany, it was able to take the low hanging fruit in competition with the periphery. With the periphery under pressure to reform and unit labor costs falling (except perhaps in Italy), France is being squeezed--from Germany above and the periphery below. We continue to suspect that the European debt crisis will not be fully resolved until it sweeps through France.