August 15, 2013 6:07 pm
The eurozone’s two largest economies grew at a respectable pace in the second quarter: an annualised rate of 2.8 per cent in Germany; a surprisingly good 2 per cent for France. This puts an end to six quarters of contraction in the single-currency area. A patchwork of problems remains to be tackled but the eurozone’s return even to modest growth – 1.2 per cent annualised – is cause for relief.
Beyond the Franco-German data, other arrows are beginning to turn upwards as well. Spain’s recession may be bottoming out: output fell by only 0.1 per cent in the second quarter, and export volumes – to emerging markets, not just Europe – are impressive. Portugal racked up the fastest quarterly growth in the EU, also on the back of strong exports. Even news from Greece is becoming less unremittingly bad – the country’s industrial production ticked up in June. Each of these may be just a flash in the pan – but even so, they are welcome flashes. Together, they form an impressionistic picture of a new phase in the eurozone economy.
European policy makers are taking the opportunity to pat themselves on the back. Their self-congratulation is as unwarranted as it is predictable. This is not just because many black spots remain on the economic record – Cyprus is still in free fall; the Dutch and Italian economies keep shrinking. It is also because the backbone of eurozone policy – universal austerity, including in countries that do not need it – made its economic performance worse, not better.
The eurozone’s return to growth owes most to the European Central Bank president Mario Draghi’s commitment to use monetary policy to combat the risk of a euro break-up and the German chancellor Angela Merkel’s political backing for him. The question of the euro’s continued existence has now been settled in the core of Europe, a fact not sufficiently appreciated by outsiders. Painful structural reforms in some of the countries worst-hit by crisis are also showing signs of bearing fruit.
More is needed. Only realising ambitions for a banking union will end the severe credit crunch that continues to damp activity and employment in deficit economies. Some of the fiscal rescue programmes may have to be extended unless growth picks up even more strongly. All of this is made politically harder by an overzealous focus on deficit cuts that does not distinguish between states with and without fiscal space. The more Europeans lose their livelihoods, the fewer of them will give necessary reforms the time to work.
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